Gold rose in response to the repricing of Federal Reserve rate hike expectations after the FOMC meeting in July. However, gold is not out of control yet, with analysts not ignoring that it will return to $ 1,700.
“Fed will start to slow down rate hike”
cryptocoin.com As you follow, the Fed increased rates by 75 basis points on Wednesday. Then Fed Chairman Jerome Powell said another big increase is possible in September. Still, it all depends on new rounds of macro data. And before the September meeting, there will be two rounds of inflation and employment data to digest.
Powell also noted that after raising interest rates by 150 basis points in just 40 days, the Fed is now neutral. He also signaled that this means the Fed may soon begin to slow the pace of rate hikes. Speaking to reporters, Powell said:
Now that we are neutral, it will be appropriate to slow down at some point as the process continues. And we haven’t made a decision about when that point is. But intuitively this makes sense. We loaded these huge interest rate hikes from the front end. Now we are getting closer to where we need to be.
“Fed ready to sacrifice growth while trying to curb inflation”
In terms of data, signs still point to troubled inflation figures and a slowdown in the economy. The personal consumption expenditures price index, the Fed’s preferred gauge of inflation, rose 6.8%, the most significant annual increase since the 6.9% published in January 1982, the Bureau of Economic Analysis said on Friday.
Meanwhile, the US second-quarter GDP contracted by 0.9%, marking the second consecutive quarter contraction. Thus, the USA entered a technical recession. Until the September 21 FOMC meeting, there are two US jobs reports, two inflation pressures, and the Jackson Hole annual symposium. . James Knightley, ING’s chief international economist, therefore finds it unsurprising that the Fed has chosen to remain uncertain in its forward guidance. The economist comments:
The Federal Reserve has made it clear that it is prepared to sacrifice growth while trying to keep inflation towards the target. But now the US is in a technical recession. It also appears to be heading towards a ‘real’ recession, with rising unemployment and falling consumer spending. Therefore, we expect the Fed to return to 50 basis points increases in September and November.
“Fed will continue marching for now”
All eyes will be on US jobs data for July next week. These data are expected to confirm the slowdown. Economists’ consensus estimates are for 250,000 new jobs to be added in July. James Knightley explains:
There are still two vacancies for every unemployed American. Small businesses are crying out for staff. So we suspect it will be a lack of supply hindering the figure. Unemployment remained at just 3.6%. In addition, wages have increased by around 5% annually. In addition, inflation stands shy of 10%. Therefore, the Fed will continue to march for now.
However, weaker ISM reports from the US next week are likely to confirm the slowdown in the economy. That’s why he adds that the Fed may tighten policy “more modestly” in the coming months.
“Gold price rose with short closing rally”
After the Fed’s statement, gold entered a short closing rally. Commodity strategists at TD Securities describe this move as follows:
Gold prices are flirting with levels that could trigger a major short. President Powell has set a high bar for another jumbo-size increase, given the slowdown trend in the data. Therefore, it accelerated the short closing rally.
TDS: We haven’t seen any capitulations for gold yet!
However, strategists say that gold should close above $1,785 for a more permanent change in trend. Still, TD Securities believes markets may have a little too much confidence in the Fed pivot, especially in light of the latest inflation data. Based on this, the bank says it entered a tactical short position for gold with a target of $1,660. In this context, strategists make the following comment:
We see risks that Fed speakers could push back against market expectations for an early Fed pivot. Gold markets are facing a large amount of indifferent positions held by traders who still hold the title of dominant speculative power in gold. Underneath we have not yet seen capitulation. This shows that the pain trade is still on the downside. We hope that the last rally will eventually face a bid wall.
“Big inflows into gold ETFs are reversing”
Also, strategists note that large inflows into gold ETFs continue to reverse. He also notes that other speculative groups are pushing to unravel their bulge in the yellow metal. To that extent, he says, gold markets are set up for additional price weakness. From this point of view, strategists reach the following conclusion:
The other huge, complacent position since 2020 is particularly approaching pandemic-era entry levels. These positions risk joining the liquidation vacuum.
Edward Moya: This is good news for gold prices!
Other analysts are more optimistic about gold. He expects the precious metal to perform well in a stagflation environment. Edward Moya, senior market analyst at OANDA, notes:
Stagflation is here to stay. This is good news for gold prices. The US economy is heading towards a recession. As long as Wall Street believes the Fed will provide a slower pace of tightening, gold will likely start seeing safe-haven flows again.
“In this process, we can see that the gold price settles in this range”
One of gold’s toughest hurdles has been a strong economy in the face of the Fed’s aggressive rate hikes. But now as things slow down, the outlook for gold is changing. Based on this context, Edward Moya makes the following statement:
Gold’s biggest risk was that the economy would remain firm and the Fed would need to be more aggressive in its rate hikes. The risk of the Fed’s rate hike of 100 basis points has long since disappeared. Gold will face strong resistance near $1,800. In the process until the Jackson Hole Symposium, we can see that gold settles in the range of $ 1,725 to $ 1,800.
