The gold market fell below $1,900 for the first time since March. More importantly, it continues to decline from now on. Now some analysts expect it to test the $1,800 support. But any short-term weakness does not change the precious metal’s fundamental long-term bullish outlook, according to one market analyst.
A. Gold prices remain relatively strong says
Ole Hansen, head of commodity strategy at Saxo Bank, says the sell-off in gold should happen sooner. He cites bond yields and where the US dollar has been for most of the month as the reason for this. Hansen adds that even after Wednesday’s sell-off, gold prices remain relatively strong.
Spot gold prices were last traded at $1,873.5, up 0.47% on the day. At the same time, 10-year bond yields are currently trading near 16-year highs at 4.6%. The US dollar index is at its highest level in nearly a year, above 106 points. Hansen states that the weakness in the gold price is meaningful as the Fed continues its tightening trend. cryptokoin.com As you follow from , the Fed left interest rates unchanged last week. But it has signaled that it is prepared to leave interest rates in restrictive territory for the foreseeable future as it plans to reduce inflation to its 2% target.
It’s time for gold to rise patiently
Ole Hansen notes that the Fed is stifling growth with restrictive interest rates. That’s why he remains optimistic that a soft landing for the economy is possible. However, Hansen says the market gives different signals. He notes that the bearish steepening of the yield curve continues to point to an impending recession. He notes that this environment puts pressure on the gold price. Hansen says the Fed is currently caught in the midst of slowing economic growth and persistently high inflation due to rising energy costs. Based on this, the analyst makes the following comment:
Stagflation is coming in my book. This keeps gold at these levels. We have said it before, but now it is time for gold to rise patiently.
These developments support the yellow metal!
The Federal Reserve monetary policy stance is working against the gold price. However, Hansen says he suspects market sentiment will change as growth weakens. He adds that investors still fear that the Fed’s aggressive stance will push the economy into recession. He notes that this fear continues to support gold as a safe haven asset. In this context, the analyst makes the following assessment in a recent report:
Saxo Bank’s fixed income expert said ‘higher for a long time actually means higher until something breaks’. I think that’s what we’ll see. This supports gold prices. It is unlikely that demand for gold will disappear as a hedge against soft landing failure. Because the outlook for the US economic outlook in the coming months looks increasingly challenging. With this in mind, we remain patiently bullish on gold.
A test of $1,800 is possible for gold in the short term!
According to the analyst, while we expect the FOMC to focus on interest rate cuts rather than interest rate hikes, the timing of a new upward move will largely depend on US economic data. Hansen says choppy trading will likely continue during this time, as it did last quarter.
As for how far gold prices could fall, Hansen says he wouldn’t rule out testing $1,800 in the near term. However, he adds that there will likely be solid resistance between $1,840 and $1,850 as there is a significant Fibonacci retracement level.
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