Dollar and US Treasury yields fell on expectations that the Fed would signal a slowdown in rate hikes. As a result, gold prices rose on Wednesday. Analysts interpret the market and share their predictions about what will happen next.
“The possibility of a strong short-term rally for gold prices is possible”
Spot gold was trading at $1,668, up 0.92% at the time of writing. U.S. gold futures rose 0.98% to $1674.2. Data released on Tuesday showed that US consumer confidence slumped in October. Also, house prices fell sharply in August. This is a sign that the Fed’s aggressive stance is starting to cool the labor market. Yeap Jun Rong, IG market strategist, comments:
With gold prices in a bearish position, the possibility of a strong short-term rally is likely on the table if any signs of a rate slowdown from the Fed are presented.
“Dove becomes a pivot key for gold to regain its appeal”
Meanwhile, markets still widely expect the Fed to raise rates by 75 bps in November. However, he is also likely to discuss how much further he can raise borrowing costs. In a note, OCBC currency strategist Christopher Wong highlights:
It is possible that a calibration in the Fed’s tightening rate could slow the pace of gold’s decline. However, the dove becomes a pivot key for gold prices to regain their appeal. Gold is likely to attract “consolidative” trades in the near term. Technical support stands at $1,617. Besides, it is likely to face resistance near $1,694.
“The effect of this will be upside for gold prices”
Investors are also watching Thursday’s US GDP and ECB meeting. After that, they focus on Friday’s US core inflation data. Meanwhile, expectations that the weakness in the US economy will slow the pace of the Fed’s rate hikes have increased. Because, cryptocoin.com As you follow on , the dollar fell and then gold reversed its course. Bob Haberkorn, senior market strategist at RJO Futures, comments:
We are seeing some weakness in the dollar and some gains against the dollar in some other currencies. This pushes gold back up. If the Fed raises interest rates below the expected 75 bps, this will indicate a slowdown in interest rate hikes. Hence, the effect will be upside for gold prices. But gold investors expect something more tangible.
“Investors are still giving gold the cold shoulder”
Rising interest rates increase the opportunity cost of holding unyielding gold. This reduces the attractiveness of the nugget. In a note, Commerzbank analysts point to position data showing that the majority of speculative financial investors continue to bet on the falling gold price. However, it highlights the following:
Investors are still giving gold the cold shoulder. Therefore, it creates a permanent headwind.
The U.S. Commodity Futures Trading Commission (CFTC) announced on Friday that speculators moved to net short positions of 20,633 contracts under COMEX in the last week. Meanwhile, data showed that China’s net gold imports from Hong Kong in September fell by half compared to the previous month.
Important technical levels for gold prices
Analysts say the appetite for gold will likely remain shaky as investors assess whether the Fed will stay hawkish next week. Lukman Otunuga, head of market analysis at FXTM, notes that after that there was a quieter pace of increases. Talking about technical issues, FXTM’s Otunuga points out the following levels:
Persistent gold weakness below $1,655 is possible to open the doors to $1,615 and $1,600 respectively. Besides, a break above $1,655 is likely to trigger a rise towards $1,670 and $1,680.
“Gold outperformed in currencies other than the dollar”
For now, DXY’s pullback has provided support for dollar-denominated gold prices. Colin Cieszynski, chief market strategist at SIA Wealth Management, comments:
The fluctuations in the gold market are now driven by the ups and downs of its long-time foe, the US dollar. However, investors should keep in mind that gold outperforms other currencies such as the euro, pound and yen. This shows that it continues its role as a store of value. For example, this year, gold has managed to remain a store of value. On the other hand, the yen has collapsed to the point where multiple interventions from the BOJ are required to support it. In this direction it has had only mixed success.
Will the Fed raise interest rates at a lower rate?
The decline in US Treasury bond yields also supported gold prices. Peter Grant, vice president and senior metals strategist at Zaner Metals and Tornado Precious Metals Solutions, says the market largely expects the Fed to announce another 75 bps rate hike at its meeting next week. The strategist explains:
This increase is an inevitable result. The tone of the policy statement will be a more significant event, however.
