Gold prices rose on Tuesday as a weaker dollar boosted bullion’s appeal to offshore buyers. But risks from the Fed’s upcoming major rate hikes have limited further gains. Analysts interpret the market and share their claims.
“There is no precious trigger for gold in the near term”
Spot gold is flat at $1,650 at the time of writing. US gold futures, on the other hand, were last traded at $1,657.50, down 0.4%. The dollar index (DXY) slumped to a 1.5-week low as sterling rose in the wake of Britain’s dramatic U-turn on the small budget that rattled global markets and cut taxes.
Jigar Trivedi, senior analyst at Mumbai-based Reliance Securities, says gold’s rise on Tuesday was mainly driven by weakness in the dollar. However, Trivedi also underlines the following issues:
Investment demand and individual demand went silent. There is no valuable trigger that could push prices above $1,700 in the near term. Concerns about the increase in interest rates continue.
“A valuable driving force is required for the gold price to rise”
The holdings of SPDR Gold Trust, the world’s largest gold-fortified exchange-traded fund, fell to 939.10 tons on Monday. This is the lowest level since March 2020.
Koindeks.com As you can see in , the sharp rate hikes in the US increase the opportunity cost of holding gold without yield. Also, gold is down nearly 10% so far this year as dollar and bond yields rise. Stephen Innes, managing partner of SPI Asset Management, says it takes a valuable push to push gold higher. He notes that this could be a significant drop in 10-year returns.
“There will be an effort to recover gold”
In the middle, last week’s data showed that inflation rose strongly in September. Following that, markets expect a fourth Fed rate hike of 75 bps next month. Spot gold looks neutral in the $1,641-1,658 range, according to Reuters technical analyst Wang Tao. The analyst also notes that escaping from here would probably suggest a side.
“The dollar is significantly down in value… its yields are falling,” says Bob Haberkorn, senior market strategist at RJO Futures. He states that there is ‘demand for a safe harbor with high geopolitical risks’ at the same time. The analyst also mentions the following points:
However, although there are many question marks in the world, there will be an effort to recover gold. Investors want security. However, not getting into Treasury bonds is a challenge with rates rising so fast.
“It is possible for gold to beat short squeeze in this form”
In a note, TD Securities underlines that quantitative tightening (QT) continues to deplete liquidity in global markets, putting pressure on global assets due to tighter monetary policies and slowing growth prospects, and will increasingly restrict other central banks before tying the Fed. Analysts include the following evaluations in their notes:
These, in turn, put pressure on gold prices despite increased recession risks. In addition, it supports the rise of the dollar. Because the rising insistence of inflation shows that the possibility of the Fed to stop the march in a precautionary form is low. However, in the short term, the recovery in risk assets, supported by stabilizing signs of bonds, is adding to the pressure on the precious metal shorts. However, to expand the short squeeze, gold prices must rise above $1,750.
“The dollar index is the most influential factor on the gold price”
Gold prices rebounded a bit on Monday. However, investors expect the Federal Reserve to continue raising interest rates through the first quarter of 2023, potentially worsening the situation. Thus, hopes for a lasting recovery for the yellow metal have faded. Naeem Aslam, chief market analyst at AvaTrade, comments:
The most influential factor in the gold price is the dollar index. It’s pretty clear that the Fed will continue to raise interest rates. There are no signs that they will slow down their monetary policy anytime soon.
“It is possible that this will support gold as the economy falters”
“There is no doubt that traders are hoping that peak inflation and rate pricing is almost in sight,” Craig Erlam, senior market analyst at OANDA, wrote in a daily note. The analyst continues his assessment in the following direction:
In general, recent economic information gives reason for much optimism. However, this is likely to change in the coming months, as central banks are never far from terminal rates. This could bolster gold, especially when the economy is faltering. Also, the failure to break September lows is likely to encourage some traders.