Gold prices initially fell as the dollar gained a measure base on Tuesday. However, the yellow metal turned its direction to the north in the following hours and switched to the green zone. Investors are gearing up for US inflation data that will determine the Federal Reserve’s future policy path later this week. Analysts interpret the market and share their predictions.
“In this case, it is possible for gold to catch a strong offer”
Spot gold was trading at $1,678.6, up 0.2% at the time of writing. Gold prices hit a three-week high on the back of the weaker dollar. US gold futures held steady at $1,680. The dollar index (DXY) hit a one-week low on Monday. On Tuesday, it first gained strength, but then it nullified its benefits. This had an adverse effect on the gold side. Exinity chief market analyst Han Tan comments:
The US dollar’s quest to defend its lost base is causing a pause below the latter’s rising employment data. More evidence of ever-rising US inflation heralding further rate hikes by the Fed will loosen some of gold’s recent gains. If the election results are unclear or controversial, it’s possible for gold to catch up with a strong bid along with other believers.
“This encourages some ‘wait-see’”
In the midst of this, Friday’s data showed the US unemployment rate rose to 3.7% in October. This increased optimism that the Fed will move to less aggressive rate hikes. As such, it helped gold record its smoothest day since March 2020.
Also, this week, investors will be keeping a close eye on Tuesday’s midterm elections, which will determine Thursday’s US inflation data and US Congress’s oversight, which is expected to play a key role in the next Fed rate decision. IG market strategist Yeap Jun Rong says gold has reached resistance around $1,680. He also notes that a potentially larger catalyst encourages a bit of ‘wait-and-see’ to cause an upside break.
“Gold will see a process in this range before the US CPI”
Market participants are also keeping a close eye on the news surrounding Covid-related restrictions in China, the largest consumer of bullion. Precious metals analysts say several factors are affecting metal prices on Monday, including a slightly softer dollar and early hopes that China will surrender to Xi Jinping’s ‘Zero-Covid’ policy.
ICICI Bank analysts say US employment information on Friday put the dollar under selling pressure. For this reason, they state that the price of the precious metal has risen. Analysts expect gold prices to continue to trade in the mid-$1,600 to $1,700 near term, ahead of the US CPI report to be released on Thursday.
Have gold prices seen the bottom?
Here, gold is holding near multi-week highs reached late last week, with some analysts wondering if the short-term bottom has already arrived. Senior analyst Jim Wyckoff explains:
Gold prices rose slightly on Monday. But more importantly, it holds strong interests, including Friday’s technically bullish week-long high. This gives a graphic clue that the bottom of the market is inside.
“We expect this to be more affordable for gold prices”
Koindeks.com Last week, the Fed approved its fourth jumbo increase. Thus, he signaled that interest rates would move higher than previously claimed. Yet, in a recent note, Sprott’s market strategist Paul Wong points out:
As the market shifts its focus from rates/inflation shock to recession/financial stability concerns, we expect it to be more appropriate for gold. For most of the year, the short story of the markets was interest rate and inflation shocks. The market has only recently begun to price in the medium and long-term consequences (the recession and the associated financial instability) of the incredible rate hikes by central banks.
“The strength in the dollar continues to blow unevenly”
ANZ Bank strategists say individual investments in gold softened the downside to ETF outflows in the last quarter of the year. In this context, strategists make the following assessment:
Low gold prices and heightened economic and geopolitical risk favor individual investments against heavy ETF and futures exits. Although financial investments continue to drive the price side, we expect this trend to continue. Strong dollar and rising yields are twin headwinds for financial investment in gold. Also, it is possible that the rising risk of calm may provide a safe harbor flow. However, interest rate guidance needs to turn into a dove.