Investors were relieved to expect slower rate hikes from the Federal Reserve going forward. However, dollar and US bond yields continued to rise on Friday. Despite this, gold prices managed to close the day in positive territory. Analysts interpret the market and share their forecasts.
“The market is focused on the light at the end of the tunnel”
Spot gold closed Friday at $1,796.62, up 0.47%. U.S. gold futures, on the other hand, were last traded at $1,811.00, up 0.5%. Meanwhile, markets expect the Fed to raise interest rates by 50 bps at its last meeting on December 13-14. David Meger, director of metal trading at High Ridge Future, comments:
The market seems focused on the light at the end of the tunnel. This light comes from a point where the Fed has finished raising interest rates. Based on this, we saw a general support under it.
“How long the positive weather will last depends on them”
Interest rate hikes to combat rising inflation increase the opportunity cost of holding zero-yield bullion. Kinesis Money analyst Rupert Rowling comments:
How long this positive mood for gold will last will depend on how much the US central bank will raise the benchmark interest rate and Fed Chairman Jerome Powell’s speech at the press conference.
If the CPI rises, how will gold prices be affected?
However, data showed that US producer prices rose more than expected in November. This increased market uncertainty regarding the Fed’s policy outlook. The dollar rose 0.1% after the data, making gold more expensive for offshore buyers. Also, yields on 10-year Treasury bonds rose. Edward Moya, senior analyst at OANDA, highlights the following in a note:
If the CPI rises, that’s probably a strong reason for the Fed to raise interest rates by half a percentage point in a row before pausing. This means that gold will give back some of the gains it made last month.
“In this case, a perfect storm will appear on the horizon of gold”
Meanwhile, the European Central Bank and the Bank of England will also announce their interest rate decisions next week. Kinesis Money external analyst Carlo Alberto De Casa says the following about the latest developments in the market:
Investors are in wait-and-see mode. They are just waiting for the Fed and ECB meeting next week, which will be the ultimate key market driver for this year.
Clifford Bennett, chief economist at ACY Securities, assesses the impact of the Fed’s slowdown in rate hikes compared to expectations and a relatively mild CPI data. According to the economist, in this case, the dollar will probably weaken and suddenly we will see a perfect storm on the horizon of gold.
“I was surprised that they thought we were going back to pre-Covid so quickly!”
cryptocoin.com As you can follow, US PPI came in slightly stronger than expected in November. This overturned the market’s expectations for a more pronounced decline after a promising slowdown in the previous month’s data. However, gold prices rose. Peter Boockvar, chief investment officer of Bleakley Financial Group, explained:
I am surprised that so many people think that with inflation we will quickly return to a pre-Covid environment. I do not foresee this. Especially when listening directly to what companies have to say.
“US inflation will fall rapidly, gold prices will increase”
The consumer confidence index indicator of the University of Michigan rose to 59.1 in December. Meanwhile, economists polled by the Wall Street Journal had expected the December figure to be 56.5. However, inflation expectations for next year fell to 4.6%, the lowest level since September 2021. Capital Economics chief commodity economist Caroline Bain says the focus is on next week, when we expect the Fed to slow the tightening cycle with a 50bps increase. The economist makes the following comment based on this:
We expect US inflation to decline sharply in the coming months. Also, we expect the Fed to start easing policy in late 2023, raising all precious metal prices.
“Long term, recent recovery has legs for gold prices”
Brien Lundin, editor of the Gold Newsletter, summarizes the latest developments and explains the next step:
This week gold prices saw a big drop on Monday. However, it has made a number of good wins since then. In the longer run, gold’s recent recovery has legs. It also needs to combine with seasonal trends to create a price rally that will last until the new year.
