Investors are waiting for the Federal Reserve’s meeting next week to assess the central bank’s monetary policy stance. In the lull of this expectation, gold traded in a narrow range on Wednesday. Analysts interpret the market and share their forecasts.
“The most important effect on gold is dollar sentiment”
Spot gold was up 0.19% at $1,774.18 at the time of writing. U.S. gold futures rose 0.24% to $1,786.5 dollars. Fed funds futures are now pricing a 50bps rate hike at its December meeting with a 91% probability. Michael Langford, director of corporate consulting firm AirGuide, comments:
The most important effect on gold price is dollar sentiment. The FOMC meeting next week will determine the final direction of this sentiment. In the next few trading sessions, gold has more downside risk than upside risk ahead of the FOMC meeting.
“It is possible for spot gold to break the $1,766 support”
Meanwhile, the US November Consumer Price Index (CPI) data will be released on December 13. cryptocoin.comAs you follow, the last Fed meeting of 2022 will be held on December 13-14.
High interest rates increase the opportunity cost of holding non-yielding bullion. So this year it has put pressure on gold’s traditional status against inflation and other uncertainties. Spot gold is likely to break the $1,766 support, according to Reuters technical analyst Wang Tao. Once the bounce triggered by this support is completed, it is likely to drop to the $1,748-1,755 range.
“Gold market still has some underlying strength”
Better-than-expected US services data scared investors on Monday. It has also raised fears that the Fed will continue with aggressive rate hikes for longer. As a result, bullion closed 1.6% from a five-month high as the dollar rebounded after the data. The dollar is little changed and is holding near its lowest level since June, when it touched it in the last session.
Ole Hansen, head of commodity strategy at Saxo Bank, also said that gold remains tied to the dollar. Accordingly, he says the yellow metal has found a new bid as the dollar weakens. Hansen also shares the following assessment:
The market lost just about 2% on Monday, on a day of strong US data pressure (ISM) and a decline in ETF holdings. Given this situation, the gold market still has some underlying strength.
“The direction of yields and the dollar will continue to be the main driver”
Gold has rallied from around $1,640 to over $1,800 in the past six weeks. However, after that upswing, it has now hit a wall. Still, the gold bulls have been emboldened and some are predicting the yellow metal will go as high as $3,000. Michael Hewson, chief market analyst at CMC Markets UK, explains his expectation as follows:
The direction of yields and the US dollar will likely remain the main driver for gold prices as next week’s FOMC meets the key catalyst when it comes to the next move in prices.
However, stronger-than-expected demand signs could lead markets to reconsider more hawkish expectations, according to IG Market strategist Yeap Jun Rong.
“These pose risks to the near-term outlook”
Industrial metals like both gold and copper have been on the rise in recent days. Some analysts worry that rising Treasury yields and a recovery in the dollar as the Fed expects further rate hikes will help reverse some of these gains. Sevens Report Research analysts note:
Gold and copper are both in a short-term uptrend. However, the rebound in the dollar, the recovery in interest rates and concerns about the health of the global economy pose risks to the near-term outlook.
Important technical levels for bright metal
Colin Cieszynski, chief market strategist at SIA Wealth Management, highlights the following technical levels for gold:
On a technical trading basis, gold has been trending higher for two to three weeks. Also, a “higher bottom” appears to be emerging in the $1,760 to $1,765 region from the previous low around $1,725. Initial technical resistance appeared in the $1,800 to $1,810 range. Besides, the next potential resistance stands near $1,860 if it manages to break it again.
