Gold prices finished the week close to a five-month low. Concerns are mounting that the Fed will keep interest rates aggressively higher for longer than expected. This has a significant impact on gold.
US Treasury papers are more attractive than gold!
There is still optimism that gold will regain its luster by the end of the year. However, analysts warn investors that the technical damage is too much in the short term and the precious metal could drop further next week. Analysts state that the precious metal has not received much investor interest as a safe-haven asset, despite the fact that economic uncertainty is quite high as the Chinese economy shows signs of stress.
cryptocoin.com As you can follow, US bond yields reached their highest level in 15 years on Thursday. Therefore, rising bond yields became a major competition for gold. Analysts say holding quarterly US Treasury bonds at 5% interest rates has become more attractive than gold. Adrian Day, Head of Asset Management, comments:
The US economy will not collapse overnight. Therefore, it would be foolish not to invest in short-term bonds. But short-term Treasury bonds are just a parking lot. It is not a long-term investment. I continue my long term bullish on gold. But the current weakness in the market is hard to ignore.
“ I maintain the bullish outlook for gold prices, but…”
Ole Hansen, head of commodity strategy at Saxo Bank, also maintains a long-term bullish outlook for gold. However, he says he sees the risk of falling prices next week. In this context, the analyst makes the following statement:
I maintain the bullish outlook for gold. But these developments also highlight the risk that gold will continue to struggle, attracting demand from investors until something breaks, such as a credit event, a weaker dollar, or the belief that the FOMC is focused on lowering interest rates. Technical traders are unlikely to offer much support until the downtrend is broken. Also, there could be a risk of gold falling towards $1,865 by then.
Federal Reserve continues to dominate the gold market
It is possible that economic data will create short-term fluctuations in the precious metals market next week. However, analysts expect to see quiet market action as investors await the speech from Fed Chairman Jerome Powell on Friday. Recent economic data have provided little guidance on the health of the economy. But a growing chorus of economists say the Fed will keep its options open and stick to data. However, he expects Powel to speak in a more dove tone. Accordingly, TD Securities interest rate analysts share the following predictions:
We see next week’s Jackson Hole symposium as a good opportunity for Chairman Powell to begin laying the groundwork for the next evolution of the Fed’s post-Covid policy guidance. Given the recent positive inflation and labor market data, we expect the message of the end of the tightening cycle to dominate Fed speeches in the coming weeks as we approach the September FOMC meeting.
“ This will be enough to support gold prices!”
Michele Schneider, director of trade education and research at MarketGauge, says even Powell’s neutral comments will be enough to support gold prices as it will show bond yields peaking. Schneider adds that Powell is in a difficult situation. Because, according to Schneider, Powell is trying to take an aggressive stance in the face of the slowing economy. From this point of view, Schneider underlines the following points:
There is still much debate and uncertainty about the direction of the economy. Will we see recession, soft landing, deflation or stagflation? Regardless, we know that at some point we will see some negative effects of higher interest rates. When the economy starts to slow down, the Fed will not be able to sustain these aggressive interest rates. They will have to cut interest rates even as inflation remains high and these expectations support gold prices.
“Buying at lower levels makes sense!”
Michele Schneider also says that although gold has seen solid selling pressure over the past four weeks, the market continues to show resilient strength. Schneider points out that despite the selling pressure, gold remained above its March lows. In this context, he explains his view:
I’m not worried about gold. If it were me, I would look to buy at lower levels.
Analyst explains technical targets for gold prices
While there may be a glimmer of hope for gold next week, some dark clouds are still hovering over the market. Analysts say it suffered significant technical damage by falling below its 200-day moving average. FxPro senior market analyst Alex Kuptsikevich said in a note that gold prices could head towards $1,800 as the precious metal saw only three positive sessions throughout August. The analyst draws attention to the following technical levels:
Gold’s sharp decline started a month ago when bears once again prevented the metal from consolidating above $1,980, a critical resistance level since May. Gold, which started to decline in August, first fell below the 50-day moving average and two days ago, below the 200-day moving average. Both curves act as medium and long-term trend indicators. Unless there is a strong rally above $1,905 today or Monday, confidence that gold’s downtrend has already settled will increase. In this case, the $1,800-1,810 region is a potential technical target. This is where gold has been backed or surrendered many times over the past three years.
Marc Chandler: In search of a yellow metal bottom
Marc Chandler, Managing Director of Bannockburn Global Forex, says gold is looking for a bottom. He also notes that next week’s price action will likely be very significant. Chandler watches these levels:
A close at ~$1,897 above the 5-day moving average, which it hasn’t done this month, could perhaps be the first sign that the downside momentum is easing. A move above the 200-day moving average (~$1,906) should help stabilize the technical tone.
next week’s data agenda
- Tuesday: Current Home Sales.
- Wednesday: Flash Manufacturing PMI, New Home Sales.
- Thursday: Weekly Unemployment Claims, Durable Goods Orders, Jackson Hole Symposium.
- Friday: Fed Chairman Jerome Powell will speak in Jackson Hole.
