Gold price hit a two-week high on Friday. The bright metal posted its first weekly gain in five weeks as the decline in the US dollar and Treasury yields gave a pause on expectations for further rate hikes from the Federal Reserve. Analysts interpret the market and share their forecasts.
“The vitality in gold consumption can continue”
Bart Melek, head of commodity markets strategy at TD Securities, says gold will remain within the $1,830-1,850 range until a new catalyst is found, such as next week’s employment or consumer price data. Melek adds that with China’s recovery, the buoyancy in gold consumption may continue and people buy yellow metal to hedge against inflation.
The US dollar index is heading for its first weekly loss in five days, making gold more attractive to other currency holders, while US 10-year benchmark yields fell near a four-month peak. Fed Chairman Christopher Waller said strong economic data could see rates above the 5.1%-5.4% range, while Atlanta Fed President Raphael Bostic said he favored a “slow and steady” increase forward and a pause in mid or late summer.
“If the price of gold breaks above this level, there will be new demand for bullion”
Craig Erlam, senior market analyst at OANDA, writes in a note that gold’s support at $1,780-1,800 over the next few weeks could be due to a more hawkish shift in US monetary policy.
Ole Hansen, head of commodity strategy at Saxo Bank, says gold has found support at $1,800 and if there is a break above $1,865, there will be new demand. According to the analyst, if we see any signs of weakness in the economic data and this causes interest rate hike expectations to drop, that will be supportive.
Gold price closed the week with a strong rally
The number of new applications for unemployment benefits in the US fell again last week, raising fears that the Fed will continue to raise interest rates for longer. Another report, released Thursday, showed labor costs rose much faster in the fourth quarter than previously anticipated.
There was some positioning ahead of a number of different Fedspeak and service ISM figures over the week, according to Tastylive head of global macro Ilya Spivak. Spivak said that if Fedspeak reinforces that interest rates could rise even higher, gold could end the week in distress. However, gold price closed the week with an increase of 1.11% at $ 1,856.
In which direction and how will the gold price move?
Kitco analyst Gary Wagner writes that the dollar is the ‘primary driver’ of gold price action as investors evaluate the Fed’s rate path. The dollar rallied in February and pushed gold down as hot US jobs and inflation data saw traders price their expectations of more aggressive Fed rate hikes and largely priced in previous rate cut expectations by the end of the year.
RBC Capital analyst Christopher Louney says gold prices may also have found support lately on fears that an aggressive Fed could push the US economy into recession. However, he noted that the continued rise in US Treasury bond yields and a relatively resilient dollar mean that upward movement may be limited.
“If Fed Chairman Powell sticks to the hawkish scenario and we don’t see a major downward revision to January and strong jobs growth in February, gold could see this week’s rally blown away,” said Edward Moya, senior market analyst at OANDA. Gold could skyrocket if Powell provides optimism that the peak is close to settling.”
“Dollar may weaken in the second half of 2023”
Gold is likely to follow changing market expectations around Fed tightening in the short term, according to ANZ Bank strategists. In this context, strategists make the following assessment:
The gold market remains fragile against market expectations around the Fed’s monetary policy. Strong economic data from the sticky-inflationary US raises the risk of further rate hikes. This is likely to be a headwind in the short term. Still, we foresee a limited increase in the USD, which is a tailwind for the gold price. Even with higher final rates, the USD is likely to weaken in the 2nd half of 2023.
“The correction in the gold price is more or less complete!”
cryptocoin.com As you follow, the gold price lost more than 5% in February. However, Commerzbank strategists think the yellow metal has bottomed out. According to strategists, gold’s recent moves were a combination of a rising US dollar and sharply rising bond yields due to the massive upside correction in US interest rate expectations. Strategists make the following statement:
At the end of the month, the expected interest rate peak was pulled back into the fall. Moreover, it is now set at almost 5.5%, which is about 70 basis points higher than forecast at the beginning of the month. Moreover, there is no expectation of a rate cut this year. Despite the expectations for even higher interest rates, the price increase seen this week may indicate that the correction in the gold price is more or less complete and the price may have bottomed out earlier in the week.
