The gold market remains under significant selling pressure. The market expects the Federal Reserve to be even more aggressive. In this environment, gold prices could drop below $1,800, according to analysts.
Lukman Otunuga: Gold prices may suffer more
The Fed started its two-day monetary policy meeting on Tuesday and was on track to raise interest rates by 50 basis points. But on Friday, the US Consumer Price Index hit 8.6% last month, hitting a 40-year high. Markets now see a 90.5% chance of a 75 basis point move Wednesday, according to the CME FedWatch Tool. According to economists, this will mean the Fed has acted this aggressively for the first time in 27 years. Some analysts say these hawkish prospects are not good for gold prices in the short term. Lukman Otunuga, FXTM Senior Research Analyst, comments:
Gold took a real hit on Monday. It tumbled almost 3% as investors priced in the chance for a 75bps rate hike after last Friday’s high inflation figures. Gold could suffer more on Wednesday if Jerome Powell sets a hawkish tone or signals that the Fed will continue its aggressive approach to raising interest rates. A solid daily close below $1,800 is likely to signal a bearish turn towards recent lows at $1,765.
İpek Özkardeskaya: The only asset that attracts investors’ capital is dollars
Swissquote Bank senior analyst İpek Özkardeskaya said that the only asset that attracts investors’ capital is the US dollar records that. In a note Tuesday, the analyst wrote:
No one wants to give any assets other than the US dollar a chance before tomorrow’s FOMC decision. Even traditional safe-haven assets are suffering right now.
Ole Hansen: Strong headwinds for gold prices
Along with the US dollar, rising bond yields and rising real interest rates are also challenging for gold proves that there are winds. Ole Hansen, Head of Commodity Strategy at Saxo Bank, released Tuesday. Hansen looks at the drawing of gold in the report. The analyst says that prices are at a pace to test support around $1,780. The analyst makes the following prediction:
The weekly chart shows that if the $1,780 support is broken, there is no strong support before $1,670. A daily close above $1,880 is needed to reverse the bearish chart.
Hansen notes that 10-year real bond yields are trading around 0.65%, the highest level since March 2019. It also adds that it has risen from -1% seen at the beginning of the year. In this context, the analyst makes the following assessment:
There is a historical relationship between gold and real returns. Based on this, it is possible that some would argue that gold is currently overpriced at more than $300.
“Despite all this, there is still a strong fundamental support for gold”
However, Hansen is still for gold despite the tough technical picture. He adds that there is strong fundamental support. He says turmoil in financial markets, the threat of rising inflation and rising stagflation risks will continue to support prices. The analyst ends his assessment as follows:
Traders are reacting to the highest inflation level in 40 years. In addition, the risk of stagflation increases. Besides, there is turmoil in stocks and cryptos. We believe that all these are some of the reasons why gold did not fall at the pace determined by real interest rates.
BLF: When this happens, it will be time for gold to shine
Other analysts state that the market remains healthy even if gold prices fall. They also think that lower prices can be seen as a buying opportunity. Blue Line Futures analysts say the following in this context:
As these expectations emerge, it is imperative that gold remains constructive. If it can, there will come a time when inflation cools and the Fed can step off the gas. When this happens, it will be time for gold to shine.
TDS: This makes gold less attractive as an investment
Kryptokoin.com ‘ As you’ve been following by, gold came under considerable pressure on Monday. Gold prices fell almost 3% to $1,820. According to strategists at Commerzbank, gold is facing headwinds from the very strong US dollar and above all from rapid increases in bond yields. Strategists explain their views as follows:
Two-year US Treasury yields rose by about 30 basis points. Yields on ten-year US Treasuries rose above 3.4% for a while. This was the highest level in more than 11 years. As a result, real interest rates also rose significantly. Real interest rate rose to 0.68%, the highest level in three years. This makes gold less attractive as a non-interest-bearing alternative investment.
Michael Langford: Gold prices will break below $1,800
Federal Open Market Committee (FOMC) decision on interest rates today will explain. According to the Wall Street Journal, the Fed will raise interest rates by 75 basis points. Then the market will price it right away. The market now expects a total of 200 basis points of rate hikes by September. AirGuide’s director of corporate consulting, Michael Langford, makes the following predictions:
Gold price is likely to rise or hold steady before the session (Fed announcement). However, it is more likely to expect it to continue its downtrend over the next week. This overall bearish trend in gold price will be protected once gold breaks below $1,800.
