A stronger dollar continues to reduce bullion’s appeal. Investors, on the other hand, are cautious about the US Federal Reserve’s aggressive rate hikes. Against this backdrop, gold fell near a one-month low on Tuesday. Analysts interpret the market and share their forecasts.
“I am on the alert for the price of gold to drop to $1,700”
Spot gold hit $1,727.01 on Monday, its lowest since July 27. At press time, it remains flat at $1,736.43. Meanwhile, US gold futures held at $1,749.10. City Index senior market analyst Matt Simpson comments:
Concerns that Fed Chairman Jerome Powell will deliver a hawkish message alongside a recession warning at the Jackson Hole Symposium kept the US dollar higher. It also created weight on the yellow metal. A clear indication that gold investors are concerned is that the CBOE gold volatility index and downside protection through put options are both bullish. I am alert for more losses and the potential for gold to drop to $1,700.
“It is possible for spot gold to test the $1,744 resistance”
cryptocoin.com As you follow, the dollar erased previous losses and gained 0.2%. Thus, in July it attempted to break its twenty-year high. Rapid Fed rate hikes and hawkish comments on further tightening since March have dampened bullion’s appeal as an inflation hedge. Gold prices rallied above the key $2,000 level in early March. However, it has since dropped more than $300.
Jerome Powell, meanwhile, will deliver a speech at the annual global central banking conference in Jackson Hole, Wyoming, on Friday. Powell is likely to hint at how high interest rates will be in his highly anticipated speech. Markets are pricing in Fed funds futures with a 56.5% chance of a 75bps rate hike in September. Reuters analyst Wang Tao looks at the technical side of gold. According to the analyst, it is possible for spot gold to test the $1,744 resistance. A break above this is likely to yield gains of up to $1,759.
“Gold may drop below $1,700 after Jackson Hole”
The dollar hit a five-week high against major currencies. This has made dollar-priced gold more expensive for offshore buyers. TD Securities commodity strategist Daniel Ghali says gold is under dollar pressure. The analyst notes that the yellow metal is under pressure from market expectations that Fed Chairman Jerome Powell’s speech in Jackson Hole will strengthen the Fed’s hawkish stance.
Ghali adds that prices may drop below $1,700 after the Jackson Hole conference. Higher interest rates increase the opportunity cost of holding gold that does not pay interest.
“Gold price is likely to face pressure in the short term”
Economists polled by Reuters expect the Fed to raise interest rates by 50 basis points in September. This is based on expectations of peak US inflation and rising recession concerns. In a note, Commerzbank says the Fed is likely to raise interest rates further by the end of the year. Therefore, he sees it as likely that gold will face pressure again in the short term. However, he also notes that once the rate hike cycle is over, gold should start to rise.
“It’s only a matter of time before gold retests 2022 lows!”
Carlo Alberto De Casa, foreign market analyst at Kinesis Money, says the dollar’s recovery last week creates a “challenging scenario for precious metals.” “If dollar and Treasury rates continue to rise, it’s only a matter of time before gold retests 2022 lows,” analysts at Sevens Report Research wrote in Monday’s news release. Carlo Alberto De Casa continues his explanation as follows:
Markets are now pricing interest rates in the 3.5-3.75% range by the end of this year. Therefore, it is no surprise that we have seen a challenging scenario for precious metals in the last few trading days.
