Cautious investors stand on the sidelines as they wait for the Fed to aggressively raise rates to curb inflation. In this environment, gold continued its decline on Tuesday. This week, markets will focus on the Fed’s decision. Analysts interpret the market and share their forecasts.
“This is also a negative situation for gold prices”
cryptocoin.com As you follow, market participants expect the Fed to raise interest rates by 75 bps at the end of its two-day policy meeting on Wednesday. They also see a 19% chance for a 100 bps increase. Yeap Jun Rong, IG market strategist, comments:
Expectations for higher Treasury rates and more aggressive Fed policies rose. A stronger dollar followed, with headwinds for gold prices. More aggressive projections by policy makers compared to current market expectations may cause interest rates to remain higher for a longer period of time. This is a negative situation for gold prices.
“Spot gold could rise to $1,685 before falling”
Although the dollar index (DXY) fell 0.2%, it didn’t stray far from its 20-year high. A stronger dollar makes bullion more expensive for other coin holders. Spot gold is likely to rise to a resistance at $1,685 before falling, according to Reuters technical analyst Wang Tao.
Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 30,799,131 ounces on Monday. Thus, it fell to the lowest level since March 2020. This reflects investor sentiment.
“Gold still at low levels”
Daniel Pavilonis, senior market strategist at RJO Futures, comments:
Gold is still at low levels. Much of this is due to the expectation of the Fed’s announcement on Wednesday. In addition, high Treasury rates are also putting pressure on prices.
“Gold’s downside momentum is exhausted”
Another catalyst is needed, such as a hawkish Fed on Wednesday, for gold prices to continue falling. OANDA’s senior market analyst, Edward Moya, says gold’s bearish momentum is exhausted as last week’s sell-off has returned the yellow metal to its weakest level in two years. In this context, the analyst makes the following statement:
The road to the FOMC meeting has been very bearish for gold. Gold is stabilizing here as selling pressure wears off and will likely have to wait for the FOMC decision. What triggers investors’ hesitancy about taking a long position with gold is that even if the Fed pauses, it doesn’t guarantee they’ve completed their rate hikes.
“Until then, we will stay away from precious metals!”
Analysts from Sevens Report Research wrote in a Monday news release that gold futures closed on Thursday, the lowest since April 2020. This was partly under pressure from continued hawkish money flows and a stabilizing dollar. Analysts explain their views as follows:
New lows shift our gold forecast from neutral to bearish over the medium term. This will remain so until the dollar culminates with expectations of the Fed resulting in a peak and both nominal and real interest rates starting to decline.
Until then, Sevens Report analysts say they will avoid precious metals. They also note that they would prefer the short-term Treasury as a safe haven target for capital. Because they state that real returns have turned positive for the first time in years.
“Strong dollar puts pressure on gold”
David Erfle, founder of JuniorMinerJunky, says the strong dollar is putting pressure on the precious metal as gold falls below the $1,675 support. Because gold and the US dollar often move in opposite directions. From this point of view, Erfle records the following:
The dollar was the biggest weight over gold. And of course, the Federal Reserve continues to raise interest rates. The key support level for gold at $1,675. Previously, he came to the test five times. However, we immediately saw strong buying coming in. This is not happening today.
“Yellow metal is a hedge against stagflation”
Erfle says that gold is not a hedge against inflation, but rather a hedge against stagflation. He also notes that it is a hedge for investors who have lost faith in government and currencies. Erfle shares his views on the subject:
Investors still believe the Fed is controlling things. I expect a 75 bps increase at the Fed’s next meeting. If there is an increase of 75 bps, it is possible to get a news when it comes to the gold price. After the Fed meeting, gold is likely to see more buying as investors ‘pick up some cheap gold’. The fundamentals of gold are recovering.
