The price of gold changed slightly on Tuesday, driven by the stabilization of the dollar and the ongoing expectations that the US Federal Reserve’s rate hikes might slow down. Analysts interpret the market and share their forecasts.
“Fed ready to take a wait-and-see stance”
Spot gold was down 0.37% at $1,643 at press time. U.S. gold futures fell 0.55% to $1,645. The dollar index (DXY) has found some footing as the fall in the Chinese yuan shakes off pressure from a less hawkish Fed and bets on a stronger pound as Rishi Sunak prepares to become British prime minister.
Gold competes with the dollar as a safe store of value. Therefore, gains in the currency make the bullion unattractive to offshore buyers. But Stephen Innes, managing partner at SPI Asset Management, says the market perceives it’s near the end of the aggressive part of the Fed’s rate hike cycle. He notes that this also supports gold to some extent. Innes adds that the Fed is likely to take a wait-and-see stance after the next few hikes.
“Gold price will likely rise for most of 2023”
cryptocoin.com As you can follow, the markets are waiting for the Fed to raise interest rates by 75 bps. However, policymakers appear to be discussing the size of future increases. Clifford Bennett, chief economist at ACY Securities, comments:
Gold finally finds relative stability above $1,600. Should the pressures from the stronger dollar and some government selling dissipate in the coming months, the gold price will likely rise significantly between $1,850 and $2,200 for most of 2023.
“Inflation is a monster that is hard to kill!”
Meanwhile, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, recorded its first entry after six days of declines. Edward Moya, senior analyst at OANDA, comments on the latest developments as follows:
The market is still in wait-and-see mode. What signal will the Fed signal based on the weakness they see in the economy? Presumably, gold will be somewhat supportive in the short term. However, inflation is a tough beast to kill. The Fed will buy some time with these rate hikes before signaling this pivot.
Two scenarios for gold price from Goldman Sachs
A survey showed that US business activity contracted for the fourth month in a row in October. This is the latest evidence that the economy is softening in the face of high inflation and rising interest rates. In a note, Goldman Sachs highlights:
The gold price could potentially rise to $2,250 in the event of a major US recession. Also, a drop to $1,500 is likely in an ultra-hawkish Fed scenario.
“Gold price is at the mercy of US monetary policy”
There are reports that some Fed officials are discussing a pause in the fast pace of rate hikes. That helped gold rise on Friday as the US dollar eased. Capital.com analyst Daniela Hathorn explains:
Gold is largely at the mercy of monetary policy in the United States. It will largely depend on how people perceive the next week’s rate hike. If investors believe the upcoming 75bps surge will be the last of this magnitude, it’s possible for gold to rise. This means that the policy will slowly begin to turn.
