Gold price deepened its decline on Thursday. The strengthening dollar and expectations of a large interest rate hike from the US Federal Reserve put gold under pressure. Thus, the yellow metal fell to its lowest level in nearly two months. Analysts and experts interpret the market and share their forecasts.
“If the Fed increases by 100 bps, the gold price will go below $1,680”
Spot gold was trading at $1,683, down 0.84% at the time of writing. U.S. gold futures fell 0.91% to $1,693. cryptocoin.com Warmer-than-expected inflation data raised the possibility of Fed’s more aggressive monetary policy tightening. As a result, the dollar index (DXY) rose 0.2% and advanced towards recent highs. Michael Langford, director of corporate consulting firm AirGuide, comments:
The Fed needs to shock the economic system hard. The chance of a rate hike of 100 basis points is a very real possibility.
Meanwhile, Fed funds futures are pricing in a 37% probability that the Fed will raise interest rates by 100 basis points at its policy meeting next week. “An increase of 100 basis points will allow gold to break below $1,680,” Langford says.
“Spot gold price may drop to $1,675-1,679 range”
Meanwhile, the head of the International Monetary Fund, Kristalina Georgieva, said on Wednesday that central bankers must persist in tackling broad-based inflation.
Reuters technical analyst Wang Tao expects spot gold to drop to the $1,675-1,679 range.
“Investors are reluctant to hold gold in the short term”
The holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.24% to 960.56t on Wednesday, from 962.88t on Tuesday. In a note, ANZ analysts highlight:
Exits from gold-backed exchange-traded funds indicate that investors are reluctant to hold the precious metal in the short-term.
“This means the lights go out for gold”
According to OANDA senior analyst Edward Moya, it is possible for gold to potentially stabilize. Moya says markets are still digesting this inflation report right now. However, he notes that it apparently holds the $1,700 level and this is the key to gold. In this context, Moya makes the following assessment:
After the FOMC meeting, the (Fed) may convince the markets that they can still stay that aggressive. That means the lights go out for gold. If $1,700 is broken then we are not looking at much tech support. That will be the day we can see gold fall by $50 or more.
“We are not that far from the potential bottom for the gold price”
Leigh Goehring, managing partner of Goehring & Rozencwajg, closely monitors traders’ long positions and speculators’ short positions. Currently, commercial traders are longing and speculators are shorting. According to Goehring, this also signals an excellent entry point. However, Goehring says the gold market still has a long way to go. In this regard, he notes:
Traders are still net short while speculators are still net long. If we were to make a real turn in the psychology of gold, I think this would be the end. A potential bottom for gold is likely around $1,600 this year. This means 50% Fibonacci retracement. Actually, we are not that far away.
“The door is open for further declines for yellow metal”
Open interest on gold futures markets was volatile Wednesday, according to further pressure from CME Group. Accordingly, approximately 1.7 thousand contracts increased. Instead, volume continued its downtrend, shrinking around 71.2k contracts.
Gold price extended its weekly decline on Wednesday amid rising open interest. Market analyst Pablo Piovano says it also opens the door for the continuation of the downtrend. It also notes that it made another visit to the 2022 low of $1,680 (July 21).
