The dollar rose on Friday and rising US Treasury yields hit demand for dollar-priced bullion. On these developments, the gold price is on track for its biggest weekly drop since mid-May.
Ilya Spivak: Gold price still has not determined a direction
Gold price started close to a one-month high before hitting a four-week low on Tuesday. However, it fell about 1.3% in a choppy week. Ilya Spivak, currency strategist at DailyFX, comments:
We really didn’t move much. We’re stuck in this $1,800 to $1,880-90 range still looking for direction. “Gold needs clarity on the impact of interest rates,” he said. Either investors will think that inflation will be under control and say that gold will be lower. Or, it won’t think inflation will be contained and will want an alternative store of value. This is where gold will rise.
“Gold price will not return to pre-pandemic levels”
Investors are worried about growth in the face of global interest rate hikes. In this environment, world stocks entered their worst week since the market meltdown at the start of the pandemic in March 2020.
As you follow on Kriptokoin.com , the Fed is trying to rein in the rising inflation. This week it announced its biggest rate hike since 1994. Rising rates in the US increase the opportunity cost of holding non-returning gold. Continuing the Fed’s hawkish stance, Fitch Solutions made the following prediction in a note:
Looking forward, we expect the dollar to strengthen. We also foresee that bond yields will limit gold prices. However, the price of gold will continue to be supported by the burgeoning Russia-Ukraine war, rising global inflation and the ongoing pandemic. Therefore, prices will not return to pre-Covid-19 levels.
“Risk aversion is sharper later this week”
“Risk aversion is sharp late this week,” said Kitco’s Jim Wyckoff. US stocks fell sharply. As with stocks and bonds, analysts have characterized the gold price action mostly as a reaction to recent moves from central banks.
Naeem Aslam: Gold price continues its downward trend in recent days
Despite Thursday’s relief rally, AvaTrade chief market analyst Naeem Aslam says:
Traders and investors believe the Fed is determined to contain inflation. Therefore, the gold price has been continuing its downward trend in recent days. But the Fed is clear that its policies depend on data. Today’s data once again confirms that more weakness is coming for the US economy.
Brien Lundin: This will be extremely bullish for gold in the long run
Gold editor Brien Lundin said the Fed’s decision on Wednesday will eventually raise the Fed funds rate to 5% or even 6%, and indeed Fed funds futures show a 4% rate. Brien Lundin underlines the following in her bulletin:
But these estimates fail to do the simple math of applying these ratios to the $25 trillion federal debt owned by the public. This will bring annual interest payments in the range of 1 trillion to 2 trillion. I believe annual interest payments of this size would be politically impossible. I also think that it will be an obstacle to the Fed’s fight against inflation.
“I believe there will be an impending debt service tsunami if markets don’t force the Fed to reverse it in the early fall,” says Brien Lundin. Lundin makes the following prediction for the future:
Thus, the Fed will ultimately be powerless to control inflation. This will be extremely bullish for gold in the long run.
“The Swiss Franc is the best way to avoid stagflation”
Gold hasn’t always been the best hedge in this year’s stock market crash. That title went to the US dollar instead. Meanwhile, the Swiss National Bank decided to increase the benchmark interest rate by 50 basis points. After that, Deutsche Bank’s George Saravelos noted that he saw the Swiss franc as “the best hedge against global stagflation”.
“Whether there will be an interest rate hike after July is important for the gold price”
Chintan Karnani, research director at Insignia Consultants, told MarketWatch:
Gold traders are currently looking for clues as to when and where the Fed’s interest rates will peak. However, the US dollar index is also heavily overbought.
lLooking forward, Karnani said the focus is on whether there will be a rate hike after the July meeting. The analyst added to his predictions:
If there is no interest rate hike for the rest of the year after the July meeting, gold should make a medium-term bottom by the end of July.
