Investors await the latest policy meeting minutes, which will provide clues to the Federal Reserve’s further rate hikes. Fed minutes will be announced at 21:00 CEST. In this environment, gold is stuck in a narrow trading range on Wednesday. Analysts interpret the market and share their forecasts.
How will the Fed minutes affect gold?
Spot gold is down 0.1% at $1,737.79 at press time. U.S. gold futures were little changed at $1,738.20. OANDA senior market analyst Craig Erlam says gold is “seeing some correction” after gains of around 10% in the first half of November. In addition, the analyst makes the following statement:
But if the minutes show that more policymakers support slowing the pace of tightening from December, it could be a bullish catalyst for gold.
“There is some tension in the market ahead of the Fed minutes”
The Fed will release the minutes of its 1-2 November policy meeting at 21.00 CEST. Meanwhile, US durable goods data and initial weekly jobless claims are also on investors’ radar. “There is some tension in the market ahead of the Fed minutes,” said Edward Meir, analyst at ED&F Man Capital Markets. The analyst also makes the following assessment:
In the short term, I expect gold prices to be slightly higher from here until the end of the year. Because I predict that the dollar will weaken a little more. In addition, we are very close to the peak in inflation and interest rates.
“Currently there is a direct correlation with interest rates”
The US central bank raised interest rates by 75 bps for the fourth consecutive year earlier this month. The Fed may need to raise interest rates to a higher level and hold them for longer to successfully soften consumer demand and curb high inflation, Kansas City Fed President Esther George said on Tuesday. Daniel Pavilonis, senior market strategist at RJO Futures, comments:
I think metals are getting out of this and continue to rise. But there is currently a direct correlation with interest rates.
“Fed will probably stick to hawkish scenario for a while”
cryptocoin.com Cleveland Fed President Loretta Mester said on Monday that the central bank may move to smaller rate hikes from next month, while San Francisco Fed President Mary Daly noted that policy rate is “a bit restrictive” and “more work to be done”. Edward Moya, senior analyst at OANDA, highlights the following in a note:
Gold got some support from the weaker dollar. However, this seems to be decreasing rapidly. The Fed will likely stick to the hawkish scenario for a while. Also, if we don’t see a major improvement in China’s Covid situation, gold will have to contend for a meaningful rally.
“Only in this case, gold will permanently return to the north”
Gold is trading around $1,737. Economists at Commerzbank do not expect the yellow metal to show a lasting recovery until the first quarter of next year. In this context, economists make the following statement:
The gold price has fallen sharply again since the US dollar ended its weakness phase. The recent cooling in US inflation has dampened fears of hyperinflation and thus the Fed’s more pronounced rate hikes than ever before. However, it is clear that the Fed has not yet finished tightening its monetary policy. After all, 7.7% inflation is still far from the 2% target.
According to economists, gold will only make a permanent return if interest rate hikes end. Economists predict that this will likely be the case in the first quarter of 2023. Regarding the recent increase, economists note:
The recent increase in gold price was largely due to short closing. The latest CFTC data from the last reporting week revealed a shift to speculative net longs. So, this price driving factor is now gone.
“Gold will continue its downtrend”
Gold price bounced back strongly from the key support at $1,620. However, strategists at ANZ Bank expect gold to drop below $1,700 again. They explain their views as follows:
It will be crucial for prices to break above the $1,800 resistance to confirm an uptrend below. Markets expect the Fed to increase by 50 bps in December. In addition, inflation remains well above the target range. Therefore, we think it will be difficult for gold to break this resistance before the end of this year. We expect gold to gain support at $1,700. However, the yellow metal is likely to test $1,620, which is an important support level in the near term. Besides, a break of $1,620 could potentially open the door for a drop below $1,600.
“October CPI figures erase downside potential”
Gold rose 3.9% in the week ended November 15, 2022, after the US CPI report came in softer than expected. According to strategists at Société Générale, this has eased the downward pressure on the yellow metal. Strategists make the following assessment:
One of the spectacular activity was gold, with a bull run of $7.4 billion. The main reason for this is the $6.1 billion short closing. Flows reacted to the November 10 release of US Annual Core CPI figures for October, which was lower than the market had predicted. Low inflation is traditionally bearish for gold. However, market sentiment appears to be focused on slower Fed rate hikes or an earlier return to dovish policies.
