Gold prices fell on Friday ahead of a major US jobs report. However, the yellow metal is poised to have its best week in three weeks as the dollar weakens on prospects for slower US rate hikes.
“Powell’s speech increased the appeal of gold”
cryptocoin.com As you can follow, gold prices increased by about 2.5% this week. Thus, he is on his way to earning his second weekly earnings in a row. Meanwhile, the dollar index (DXY) remained stable. But with expectations of a peak in US interest rates on the horizon, a weekly decline of about 1% is on track. Hareesh V, head of commodities research at Geojit Financial Services in Kochi, India, says the dollar has largely recovered after Fed Chairman Jerome Powell’s comment on Wednesday, bolstering gold’s appeal. It also evaluates:
It is possible that the $1,805 level could act as a close resistance for gold. A break above this will likely trigger new rallies.
Gold investors await wage growth and NFP data
Earlier this week, Jerome Powell said it was time to slow rate hikes. Increasing rates translate into higher opportunity costs of holding the unproductive metal. That’s why it kept the traditional status of gold as an inflation hedge this year. Investors are now waiting for nonfarm payroll data to be released by the US Department of Labor. OCBC FX strategist Christopher Wong comments:
Wage growth and softer data on NFP will create a situation where all the stars are aligned for further weakening of the dollar. This will be more beneficial to gold. However, as gold is trading especially near the key resistance level, it is possible that an upside surprise in the report may stop gold’s rise.
“Declining US real yields are positive for gold and silver prices”
On the technical front, gold is trading above the 50-day, 100-day and 200-day moving averages that traders take as bullish signals. Jim Wyckoff, senior analyst at Kitco Metals, comments on the latest developments as follows:
On the daily chart, we have identified a price rise that invites technical based buying. We see the dovish trend of Fed Chairman Jerome Powell, who supports commodity markets. We also saw the US dollar index pull back.
Analysts say that data that further supports the claims of slower rate hikes showed moderation in the inflation trend last month and increased interest in gold. In a note, JP Morgan analysts highlight:
With the Fed’s recess, falling US real yields are driving our fundamental outlook for gold and silver prices to rise in the second half of next year.
“Gold likes the combination of these”
As the dollar retreated this week, treasury bills rallied, pulling yields down. Naeem Aslam, chief market analyst at AvaTrade, said in a market update, “Traders believe the era of aggressive interest rate hikes is over. It also predicts that only smaller rate increases will occur,” he wrote.
“Gold likes the combination of lower interest rates and a weaker dollar,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
“It is possible for sudden gains underneath to evaporate”
Jeff Wright, chief investment officer at Wolfpack Capital, says Core PCE’s coming in at 0.2% versus estimates of 0.3% is a very positive step towards a peak in inflation. It also makes the following statement:
Both of these data points show a highly inflationary environment. But there is moderation in the previous trend. The trend is significant for US Treasuries, the US dollar, and then gold, as the data affects all three. Still, most of the interest in gold is short-term. It is therefore possible for sudden gains to evaporate as larger capital takes profits before the end of the year.
“Everything depends on them for yellow metal”
Jeff Wright also evaluates how gold will perform towards 2023 and in the longer term. In this context, the analyst notes:
I don’t like how gold is set up as interest rate increases are only accelerating. I do not believe this is a return to less restrictive monetary policy. In other words, short-term positive, medium-term neutral and long-term not good for gold. For gold, it all depends on interest rates, the US dollar and timing.
“Gold prices will fall next year as it lowers inflation”
Economists at Société Générale predict that US inflation will fall from 8.0% in 2022 to 4.3% in 2023. Therefore, the effect of real rates on gold will continue to be extremely downward. In this direction, economists make the following assessments:
In 2023, we expect the Fed to move towards more dovish policies and the 10-year rate to decline gradually. On its own, that’s a bullish run for gold. However, we expect inflation to decline faster than interest rates in 2023. As a result, we anticipate that real rates will increase, driving gold prices down sharply. After the third quarter of 23, gold’s fortunes are likely to reverse as we expect a moderate recession in the US and stagnant EU and Chinese growth in early 2024. Investors are likely to hedge such risks by rolling over some of their allowances to gold.
“Bright metal will show a downward trend in the first quarter of 2023”
Gold rallied after Fed Chairman Jerome Powell said the Fed would slow the pace of rate hikes next month. However, strategists at TD Securities expect the shiny metal to decline towards the first quarter of next year. They explain their predictions in this regard as follows:
Fed Chairman Powell signaled that the Federal Reserve will slow the pace of rate hikes next month. However, this does not mean that rates cannot exceed 5%. Also, the market price of the terminal rate is currently just under 5%. Confirmation of a slower rate of tightening prompted the market to bid for gold. Still, given that inflation will be an issue for a while, it shows that while the rate of tightening is moderate, there are still significant risks to policy continued tightening. The current price action is likely the result of the last shorts that were closed. We still expect gold to show a downward trend in the first quarter of 2023.
