Investors are preparing for the possibility of another super-size rate hike from the US Federal Reserve to combat stubborn inflation. In this environment, gold prices are close to their lowest levels since April 2020. Analysts interpret the market and share their forecasts.
“Market is flooding for gold until Fed policy decision”
Spot gold is trading at $1,674, up 0.56% at press time. U.S. gold futures were up 0.63% to $1,681.7. The Fed will announce its policy decision today. Interest rate futures traders are pricing in an 81% probability for a 75 basis point increase and a 19% probability for a 100 basis point increase. Michael Langford, director of corporate consulting firm AirGuide, comments:
The market wants the Fed to rip the bandage off so it can gain clarity on the future rate decision situation and the direction of the broader economic outlook. Right now the market for gold is flooded until the Fed policy decision. It will then likely respond with a high level of volatility before trending favorably again as investors try to put the money to work.
“Golden ETF inflows are unlikely to recover”
The holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw their biggest one-day outflow since July 18. It fell 4.63 tons on Tuesday. This is an important indicator of sensitivity. In a note, analysts at Citi Research highlight:
Gold ETF inflows are unlikely to recover sustainably until traders crystallize a turn in the Fed’s tightening cycle and/or consensus on the US/global recession is achieved.
“Then, gold will have an opportunity”
OANDA senior analyst Edward Moya comments on the developments in the market as follows:
Gold doesn’t quell any of these aggressive tightening concerns from the Fed. Yields continue to rise rapidly, especially at the short end of the curve. This is constantly putting pressure on gold. When fears of global recession really come into focus for markets as everyone gets more aggressive with tightening cycles, then gold will have an opportunity.
The effect of central banks’ interest rate cuts on the yellow metal
Standard Chartered, on the other hand, provides the following assessment in a note:
A 100 bps increase will likely cause gold prices to fall. The widely anticipated 75 bps increase is likely to cause a short-term relief rally.
Meanwhile, a team of precious metals analysts at Commerzbank says the European Central Bank’s increasingly hawkish rhetoric this week is adding to gold’s woes.
“Gold remains stuck below key resistance”
Lukman Otunuga, head of market analysis at FXTM, notes that it has been a tough month for the precious metal due to a strong dollar and rising Treasury yields. According to Otunuga, after falling below the psychological $1,700 level last week, it looks like the bears won the battle in September. However, the analyst says, “the war is still raging with various fundamental forces affecting gold prices.” Otunuga points out the following levels for gold:
For the moment, gold remains stuck in a short-term range below key resistance. Continued weakness below $1,680, a level not seen since early April 2020, will likely open the doors to levels below $1,659.
“More rate hikes mean the continuation of gold’s downward trend”
Meanwhile, there was a bearish trend in the gold market in the week ending September 13. In the opinion of the strategists at Société Générale, the yellow metal short is highly vulnerable to closing. Strategists make the following assessment:
Silver saw a $1.6 billion bull run against a $2.0 billion bear stream for gold. So the complex was an unusual crosswind in the streams. This is the fifth week of the bearish trend for gold. Therefore, gold is extremely sensitive to shorting as current short positions have been over 90% in the last two years.
Due to the US CPI announced towards the end of the period, gold flows experienced a net decrease in this period. According to strategists, this indicates that the high interest rate environment set by the Fed will be maintained. Hence, rising interest rates will reduce the attractiveness of unproductive assets. Therefore, strategists note that further rate hikes will be bearish for gold.
Precious metals could fall further
cryptocoin.com As you follow, gold is back in the red zone ahead of the FOMC meeting. TD Securities strategists expect the yellow metal to remain under downward pressure. Strong dollar and interest rates continue to put pressure on precious metals, with the FOMC on the horizon, according to strategists. Strategists explain their views as follows:
Markets are pricing in aggressive Fed expectations. Continuing inflation continues to support the Fed’s aggressive efforts. We now expect the FOMC to raise the target rate by 75 basis points at its meeting next week. In addition, we expect it to increase by 75 bps in November and 50 bps in December. We see the potential for continued exits from money managers and ETF holdings to put pressure on prices. This, in turn, increases the likelihood that the few family offices and proprietary trade shops that hold contented gold are likely to surrender.
According to strategists, while prices are certainly weak, the restrictive rates regime has been adjusted to last longer. Therefore, it is possible for precious metals to fall further.
