The gold market is holding its ground above $1,700 ahead of the Federal Reserve’s monetary policy decision this week. The precious metal has so far remained resilient in the face of tough winds. However, one market analyst sees more downside potential in the long term.
“In this case, it is possible that the gold price will see a significant decrease”
Standard Chartered’s precious metals analyst Suki Cooper notes in a report released Friday that gold has struggled in recent weeks. We are in a period that is traditionally slow seasonally for precious metal. Despite that, Cooper says the price action is encouraging.
The analyst adds that after the Fed’s monetary policy decision, gold prices may move higher in the near term. cryptocoin.com As you follow, the markets are currently expecting a 75 basis point increase on Wednesday. CME’s FedWatch Tool shows a 24% chance for a 100 basis point move. Suki Cooper comments:
Considering how much gold prices have fallen in recent sessions, we think that the gold market also priced a 75 basis point increase at the July meeting. We believe an increase of 100 basis points will come as a surprise. Also, we expect gold prices to remain under pressure below the $1,690 level. If prices break this level, it is possible for gold to see a significant drop. On the other hand, in case of an increase of 75 basis points, we are likely to see a relief rally.
Standard Chartered’s average gold estimate: $1,700
Suki Cooper states that gold prices may rise this week. However, he adds that despite this, gold is not ready to make everything clear. More aggressive rate hikes will bolster the US dollar for the rest of the year, she says. She also notes that it will continue to put pressure on gold. Standard Chartered expects gold prices to average $1,700 by the end of the year. In this context, he makes the following statement:
Gold remained resilient given the strength of the USD. He primarily gravitated towards taking the cue from USD. We expect EURUSD to trade below par in the third and fourth quarters of 2022. This suggests that gold will likely struggle to gain any meaningful traction.
“Gold’s price response is typically not one-sided”
Suki Cooper says that despite the long-term challenges, a potential global recession remains a major wildcard for the precious metal. Meanwhile, Standard Chartered expects US economic growth to contract in the fourth quarter. Cooper notes that low growth coupled with persistently high inflation will support gold prices even in the face of rising interest rates. Cooper says on the subject:
During a recession in the US, the price response of gold is typically not one-sided. However, on average, prices have risen 15% year-on-year during the last seven recessions.
