Gold trades near 2.5-year lows. Behind this lies the hawkish stance of the US Federal Reserve, increasing US dollar and US Treasury yields. According to analysts, it is possible that this macro environment is driving more people away from gold. Thus, it is expected to create a great buying opportunity. Here are the events in the market and the expectations for the upcoming process…
Interest rate hike affected gold prices
The precious metal is down another 1.7 percent this week. The volatility and dramatic currency movements in the markets did not pass without affecting gold. Koindeks.com As we have also reported, the FED increased interest rates by 75 basis points for the third time in a row. It increased the funds rate to 4.4 percent at the end of 2022 and to 4.6 percent in 2023. For markets, this could translate into a 75bps increase in November and an additional 50bps increase in December. Bart Melek, Global Head of Commodity Markets Strategy at TD Securities, uses the following words:
We’ve seen significant increases in market assumptions about interest rates. That’s a pretty big difference from a month ago and is in line with the Fed being more aggressive. Real rates are rising – negative for gold. The high cost of transportation and high opportunity cost will likely drive capital away.
Edward Moya: It all depends on us seeing the economy weaken
Also, this kind of falconry (hard monetary policy) means that the climax of the US dollar rally is still far away. This is terrible news for gold. OANDA senior market analyst Edward Moya says the rally is not top despite the dollar’s rise. The analyst uses the following words:
This dollar rally isn’t peaking. The current market environment will likely continue to be uncomfortable. The Fed’s rate hike expectations are widely on the agenda. We won’t see any easing until we see inflation come down. The problem is that we do not understand that the economy is weakening rapidly. When we get it, that’s when you’ll see a peak in the dollar. For gold, it’s all about when we’ll see it.
The Dow Jones touched a year low on Friday. Therefore, according to the analyst, it is unlikely that gold will see a strong rally in the short term, with more volatility in the coming period. “We will not be in a rush to buy gold yet,” Moya said. There are also low volatility instruments that currently give you some returns. That narrative has been drifting away from gold lately,” he said.
$1,600 risk for gold
According to experts, eventually, gold will become a safe haven as the appetite for stocks wanes. But before that, the economy and inflation need to slow down. “Once we start to see inflation move to a more restrained level, the Fed could bounce back quickly,” says Melek. Still, he doesn’t think this transformation will happen anytime soon. The big risk for the precious metal is it falling below $1,600 an ounce. Moya uses the following terms:
If we break $1,600, we start to see buyers emerging. The next level will be $1,540. Gold will benefit from faithful port flows abroad.
Melek also sees it possible for gold to fall below $1,600 per ounce. “There will be higher volatility going forward. As volatility increases, collateral invites increase. Long cases cannot be extended. We will not see a large location entry. “It’s a lousy environment for gold,” he said. Gold tracks September employment and inflation information. Melek said, “The market is still looking at the very strict working conditions in the USA. “It implies that price pressures will continue to be an issue,” he said. Market invitations expect the US economy to create 300,000 jobs in September. In addition, the issue of the unemployment rate falling to 3.5 percent, which is close to the lowest levels in 50 years, is on the agenda.
Appropriate level to get gold
At these levels, gold is an excellent entry point for buyers. Melek underlines that this situation makes physical gold cheaper. He states that as inflation is brought under control, the Fed’s movements may reverse rapidly in 2023. He expects gold to be smooth in the long run. However, according to the analyst, the resistance for now is at $ 1.678-80. Supplements, on the other hand, cost around $1,580 per ounce.
According to another analyst, Christopher Lewis, “the sizes of candlesticks” indicate that we will fall further in the long run. He says the $1,500 level in the precious metal is “a good starting target,” based on the Fed’s moves. Stating that he has seen selling pressure in the near term and is in a downtrend, the analyst points to a level of $ 1,200 in the worst scenario.
Next week’s data
- Tuesday:Fed Leader Powell to speak, US works orders information, CB consumer belief, new home sales
- Wednesday:US pending home sales
- Thursday:US jobless claims, GDP Q2 data
- Friday:US personal income information and PCE price index, Michigan consumer sentiment