Markets continue to change their expectations regarding the Federal Reserve’s aggressive monetary policy stance. As a result, both the US dollar and bond yields fell. Thus, the gold market saw renewed buying momentum. These developments pushed gold prices to the highest level in nearly two weeks.
“Strong physical demand gave gold solid support at $1,650”
However, the Fed will continue to raise interest rates until at least the first quarter of 2023. Therefore, gold is likely to continue its struggle. However, one precious metals analyst says the market remains well supported by current prices.
Standard Charter’s executive director and precious metals analyst Suki Copper notes in a recent interview that physical demand, particularly from India and other Asian countries, provides solid support around $1,650 for gold. In this context, the analyst makes the following statement:
This price drop, which we initially saw below $1,700, was met with very strong physical interest in the gold market. So, the next level to look at here will be $1,650. Then beyond that it will be $1,600.
Will strong physical demand be enough to raise the price of gold?
Especially in India, the demand for gold and silver increases as people prepare for the Hindu festival of light, Diwali. People traditionally buy precious metals before the celebrations on October 24. India saw record demand for gold and silver over the weekend, according to anecdotal evidence.
Despite strong physical demand, gold prices are likely to drop to $1,600 an ounce. Copper says this is the lowest level he has predicted for 2023. However, he adds that it will not be sustainable as low prices will start to affect global production. Based on this, the analyst shares the following assessment:
We’re over $1,600. Then we really look at the cost of production and where this provides a guide for the gold market. In the long run, we see that gold prices tend to trade at one-third of the average cost of production. And this guide shows us that where that flow should occur on the manufacturing side is around $1,550 to $1,600.
“Concerns about higher interest rates are really affecting the gold price”
Suki Copper says the Federal Reserve’s tightening cycle remains the top headwind for gold. The unprecedented rise in the Fed Funds rate continues to support the US dollar near a two-year high despite Wednesday’s selling pressure. The analyst notes the following:
If both the dollar and gold benefit from the safe-haven demand, it is possible to see both rally. In the current environment, there are concerns about a slowdown in demand in the long run. But concerns about higher interest rates are really affecting gold.
Gold price momentum remains fragile
cryptocoin.com The gold market is seeing some modest gains as investors predict the Fed will slow the pace of rate hikes after November. But according to some analysts, markets are not fully convinced that the Fed has ended its tightening cycle. Therefore, the momentum in the yellow metal price remains fragile.
Meanwhile, markets are split 50/50 on whether the Fed will raise rates by 50 or 75 bps, according to CME’s Fed WatchTool. Although the pace of rate hikes is slowing, markets still predict that the rate will peak around 5%. This, in turn, still has a bearish effect for gold in the near term.
