The momentum in the US dollar has slowed down a bit. Also, bond yields fell after hitting a 12-year high. In this environment, the gold market sees a modest short-term rise. However, gold prices remain below $1,650. Therefore, analysts’ forecast for gold remains bearish.
Analysts’ forecast for gold is generally bearish
Analysts point out that the recent sell-off of gold has pushed the precious metal into bear market territory compared to March’s high. December gold futures were last traded at $1,643, down 20% from their highs at the beginning of the year. Gold prices have dropped 10% to date.
Analysts say the gold market is suffering valuable technical damage as the US dollar continues to trade near 20-year highs. Many analysts expect global currency market volatility to support the dollar and eventually put pressure on gold. Currency strategists at Brown Brothers Harriman comment:
The combination of continued risk-aversion impulses and repricing of Fed tightening risks looks set to hold the dollar bid overall in the near term. The outlook for the rest of the world is still deteriorating. However, the global environment generally continues to support dollar and US assets.
“Gold has lost its role as a safe haven for the dollar”
Commerzbank’s commodity analysts say investors continue to shy away from gold-backed trades in the current environment. According to Bloomberg information, 7.7 tons of gold came out of the ETF market on Friday. Then, on Monday, another 8.5 tons of gold was released. Thus, the gold ETF market has seen its 15th consecutive week exit. Analysts comment:
This served to erode nearly all the solid entries seen in Q1. The dollar promises substantial returns, at least in nominal terms, thanks to the Fed’s rate hikes. That’s why gold is about to lose its role as a safe haven for the dollar.
Two analysts’ gold claim points to $1,600
According to Lukman Otunuga, senior research analyst at FXM, gold is likely to rise a little more in the near term. However, the analyst expects the market to test $1,600. In the midst of this, markets are trying to suppress the rush of speech from many Fed officials. Therefore, we will likely see high levels of volatility in gold in the next few days, according to the analyst. The analyst continues to explain his views in the following direction:
However, the precious metal remains at the mercy of an overall stronger dollar and rising Treasury yields amid Fed rate hikes. Viewing the precious metal through a technical lens, the path of least resistance points south. Continued weakness below the $1,660 resistance is keeping the bears in a strong position.
“The US dollar remains king,” says Ipek Ozkardeskaya, senior analyst at Swissquote Bank. Based on this, he says he expects gold to drop to $1,600.
“Rising real interest rates will also put pressure on gold”
Koindeks.com As you follow, the bearish sentiment in gold has reached its highest level in four years. However, gold prices are about to sell out. Also, conditions are ripe for a ‘short squeeze’. For this reason, many analysts warn investors not to try to catch a falling knife.
According to the latest trading information from the Commodity Futures Trading Commission (CFTC), the rising momentum in the US dollar and rising bond yields forced hedge funds to push the bearish trend for gold to its highest level since November 2018. The CFTC’s Commitments of Traders report for the week ended Sept. 20 showed money managers lowered their speculative gross longs on Comex gold futures by 1,756 contracts to 78,544. At the same time, shorts rose by 16,602 contracts to 115,239. Gold’s net short position doubled from the previous week to 36,695
Commodities analysts at Société Générale note that $3.1 billion in capital escaped the gold market last week. They also reveal that this is their sixth consecutive week of debuts. Analysts say hedge funds increased their short positions ahead of the Federal Reserve’s September monetary policy meeting.
Along with the US dollar, SocGen analysts note that rising real interest rates will also put pressure on gold. “Actual rates, a valuable metric for the attractiveness of the US dollar, rose to 1.17% in September from 0.97% a week ago,” analysts say. Analysts also state that the sensitivity in the futures markets is also reflected in the gold paper market. These are artifacts traded on the gold-backed stock market.
“Techniques are in the direction of the bearish trend that cannot be overlooked”
As expected, the Fed increased interest rates by 75 basis points. But the committee was more hawkish than expected in lowering its growth claim. It also signaled that interest rates would likely rise as high as 4.6% and peak in 2023. Initially, gold tried to hold on to the hawkish Fed. However, massive volatility in the global currency market has ensured the US dollar’s dominance over the precious metal. Many analysts say the strong momentum in the US dollar will continue to weigh on gold. Colin Cieszynski, chief market strategist at SIA Wealth Management, comments on the developments:
I think the dollar is overbought and needs a correction. However, gold not only fell below $1,680, but also dropped below the 200-day moving average at the same time. These are technically very valuable and bearish tendencies that cannot be overlooked.
TDS gold assumption: risk of short squeeze increases
Commodities analysts at TD Securities expect to see more selling pressure underneath. In a note, analysts highlight:
Rising nominal interest rates and restrained inflation expectations due to tightening monetary policy will raise real interest rates at the short end of the curve. This will likely lead to more selling pressure and position reduction. The long-term bearish sentiment in the gold market has never been sustainable. The risk of short squeeze increases. Therefore, it is normal for investors to expect some measure of stability in the market.