The gold price fell to a two-month low on Tuesday. Under pressure from a stronger dollar and prospects for further rate hikes from the US Federal Reserve, the yellow metal is on track for its biggest monthly drop since June 2021. According to Standard Chartered’s latest rating, the gold market will soon test the price floor, with a 6% drop in February.
“One of the three pillars driving the rally at the start of the year has weakened”
The downward momentum was driven by the longer-term outlook for higher interest rates, reinforced by fears of sticky inflation. Gold price continues to decline and has closed in the oversold zone. Standard Chartered precious metals analyst Suki Cooper comments:
Macro headwinds continued to increase and one of the three pillars driving the rally at the start of the year weakened. The market began pricing the highest rates and the US dollar weakened. Therefore, the change in tactical interest became supportive. However, as interest rate hike expectations rise, open interest data show that positions are withdrawn.
“Gold price will face downside risk”
The two key factors gold needs to stop selling are strong physical demand and continued interest in the precious metal from central banks. “The market floor and the second two pillars will likely be tested: first, Chinese demand, and second and foremost, official industry demand,” Cooper says. In addition, the analyst makes the following statement:
Gold’s next level of support is $1,788. We still think most upside risks will be realized in the first half and gold will face downside risk in the second half.
ETF exits continue to weigh on gold market
cryptocoin.com As you follow on , gold was traded above $ 1,940 at the beginning of February and fell to $ 1,825. One concern is that China’s official sector demand may be slowing. China added 15 tons to its central bank reserves in January, less than the 62 tons reported in November and December. Cooper comments:
Official sector purchases were one of the main pillars of the gold market in 2022. But the bulk of the stream went unreported. Slower reported purchases from China could put more pressure on sentiment.
According to data from the Hong Kong Census and Statistics Office, China’s net gold imports through Hong Kong also fell by 47 percent to 23 tons in January. Meanwhile, India’s physical demand is weakening. India’s gold imports fell 76% from a year ago to 11 tonnes in January, driven by higher local prices and higher import fees. On top of that, ETF exits continued to weigh on the gold market, especially with the European investor taking the lead. On this subject, Cooper says:
Exits have so far reached 20 tons in February and 11 tons in the last four sessions. On a regional basis, assets in North America have stabilized, but Europe continues to lead in net paybacks. The macro environment doesn’t seem to support more stable assets yet.
“Gold price may fall into this range”
The yellow metal hit its highest level since April 2022 in early February. However, he soon reversed course. Gold has fallen more than 6% so far this month after strong economic data showed signs of a resilient US economy and raised concerns that the US central bank would raise further interest rates.
Kinesis Money external analyst Carlo Alberto De Casa says gold has had a negative month as the market expects interest rates to stay higher for longer. In this context, the analyst predicts, “If inflation continues to rise, gold may fall to the $1,730-1,740 range.”
OANDA senior market analyst Craig Erlam says gold is heading towards a very interesting support area between $1,780 and $1,800, but economic data could determine how solid it will be. “How it will react to this level can give a strong sentiment indicator in the markets right now,” the analyst says.
“If that happens, it can support gold!”
Gold is often viewed as a hedge against inflation, but the opportunity cost of holding it increases when interest rates are raised to reduce inflation. OCBC FX strategist Christopher Wong comments:
The question remains, ‘How much more is there to hawk the Fed’s repricing?’ It largely depends on how the US data will turn out, and especially whether the downward trend in inflation will be a little more entrenched than bumpy. A pause in the Fed’s hawkish repricing could cause the USD’s momentum to loosen, which could provide support for gold.
