Gold prices held steady below a one-week hit on Friday as the US dollar ignited. However, the non-yielding metal gained only a small weekly gain from expectations that the Federal Reserve will slow the rate of rate hikes. Analysts interpret the market and share their forecasts.
“There is a front burner problem for all markets”
Spot gold closed Friday with little change at $1,753.94. Prices saw a 0.2% gain over the week. US gold futures rose 0.5%. Meanwhile, the dollar gained 0.2%. Thus, dollar-priced gold made it more expensive for off-shore buyers. Also, China, the world’s largest gold consumer, reported a new daily record for Covid-19 infections on Friday. Kitco Metals senior analyst Jim Wyckoff comments:
We monitor dollar and low volume trade. Chances are, there won’t be much to move the market in either direction. So we won’t be seeing more of it during the day. Also, the Covid situation in China does not look any better. So it’s going to be a front burner issue not just for gold but for all markets here over the next few weeks.
“Gold prices technically failed to break resistance levels”
High interest rate hikes by the Fed this year have been a stumbling block for gold. However, traders are expecting a 50 bps rate hike at the December meeting after the Fed’s latest policy meeting minutes indicated that rate hikes will be slower. Bart Melek, head of commodity markets strategy at TD Securities, comments:
Technically speaking, we were unable to break the resistance levels. So we are now looking for support potentially slightly lower, closer to $1,730.
“Gold prices stabilized between $1,730 and $1,780”
Oanda senior market analyst Craig Erlam evaluates the latest developments as follows:
Minutes after the Fed’s November meeting, it potentially hit gold an extra shot. It also made it really push from here if the data allowed it. Gold seems to have stabilized somewhere in this recent range, where it has established between $1,730 and $1,780.
However, Kinesis Money analyst Rupert Rowling says in a note that gold will continue to trade sideways as investors position themselves for the middle week of December. He notes that this will follow the latest US inflation figures and then the Fed’s interest rate decision.
“There will be an increase in investment demand for precious metals in 2023”
Gold initially benefited from Fed minutes, which said members of the Fed’s policy-making committee were looking forward to smaller rate hikes. Capital Economics Chief Economist Caroline Bain underlines the following in her latest article:
Minutes were somewhat dovish and then real Treasury yields fell. We think the Fed will stop tightening early next year and start easing in the third quarter. This indicates that there will likely be an increase in investment demand for precious metals compared to 2022.
“Investors take some profit after relief rally”
However, analysts say the slightly strengthened dollar on Friday helped to curb the tide of gold a bit. Also here, low trading volume helped amplify the dollar’s impact. Craig Erlam, senior market analyst at OANDA, explains:
Gold was marginally lower on Friday. However, it was quite choppy throughout the session and generally lacked any real direction. Investors are taking some profits as the dollar rises after the relief rally that followed the Fed minutes.
“Gold unlikely to prolong its recovery”
In the opinion of strategists at Commerzbank, the yellow metal does not have any upside potential at the moment, although gold prices have somehow recovered from the downturn. In this context, strategists make the following assessment:
We do not foresee any further recovery potential in the short term. After all, the US labor market is probably still so tight that the end of the US rate hike cycle remains uncertain. Rising interest rates have a restraining effect on gold, a non-interest bearing investment.
“Gold prices will struggle amid expectations of further tightening”
cryptocoin.com As you follow, gold tested $1,780 with the recent weakness in the dollar. But ANZ Bank strategists say the Fed’s commitment to lower inflation with tighter monetary policy leaves room for gains in the dollar. Strategists explain their views as follows:
Lower-than-expected inflation in the US triggered sales in the dollar. This also raised it. However, inflation remains well above the central bank’s 2% target range. This leaves room for further tightening until inflation slows significantly. US benchmark rates are rising and are likely to rise even higher given the Fed’s rate hike of another 100 basis points. Meanwhile, investment demand is stabilizing with slowing ETF outflows and closing shorts. Also, physical demand for gold is weakening, although central bank purchases remain strong.
