The price of gold rose on Tuesday as the dollar eased. Attention turned to the minutes of the US Federal Reserve’s November meeting for clues about future rate hikes. Analysts interpret the market and share their forecasts.
What will be the impact of the FOMC minutes?
Spot gold was trading at $1,746.4, up 0.5% at press time. U.S. gold futures rose 0.5% to $1,749.1 dollars. Gold has recouped some of its losses from the previous session, where investors favored the dollar’s safety amid new Covid-19 restrictions in China. The dollar stalled on Tuesday, making gold cheaper for offshore buyers.
Meanwhile, the minutes of the Federal Open Market Committee (FOMC) meeting will be released today. Most traders are betting a 50bps increase in December. After the latest statements from Fed officials, markets see the probability of a 75 bps increase as 19%. Stephen Innes, managing partner of SPI Asset Management, comments:
Investors do not expect any new important information. Thus, the threat from the minutes stems from the fact that the FOMC could put the hawkish narrative in a hawkish package, downplaying the possibility of any policy changes from tightening to easing.
But Innes adds that overall bets for more moderate inflation should support gold investors in betting on a border recession in the first half of next year and ultimately a Fed pivot on rate cuts. Innes says the only factor that could push gold back below $1,700 is “an upside surprise in the US CPI.”
“Mester’s dove words were a boost for the gold price”
Cleveland Fed President Loretta Mester said the Fed could move on to smaller rate hikes starting next month. This explanation helped below as well. “The golden bulls were relieved by Mester’s dove words,” says Phillip Futures analyst Avtar Sandu.
“The price of gold has hit a peak!”
Gold is considered an inflation hedge. However, high interest rates discourage investing in non-yielding nuggets. Edward Moya, senior market analyst at OANDA, comments:
The price of gold soared after a series of hawkish speeches by the Fed reminded investors that the risks of raising interest rates by the Fed above 5% were clearly there.
cryptocoin.com Louis Fed President Bullard summarized his view on Thursday that the Fed may need to raise the benchmark interest rate up to 7% to put downward pressure on inflation. Edward Moya comments:
Bullard’s comments that the policy rate is not yet restrictive enough are a great reminder that we need to see the labor market weaken significantly before we can price at the end of the tightening cycle. The price of gold has peaked. Accordingly, prices are likely to soften towards the $1,750 level.
“Unless this happens, a sudden northward movement of gold is difficult!”
Adam Koos, head of Libertas Wealth Management Group, says gold prices are suffocating. The Philadelphia Federal Reserve announced on Thursday that its regional business activity indicator fell to minus 19.4 in November from minus 8.7 the previous month. Data dropped more than expected. That’s why the analyst sees it as quite disappointing data. Continuing, Koos makes the following statement:
However, the odds are exploding. While the US dollar has been depreciating in the last few months, we are seeing a bounce in the dollar which could turn into a small and bigger bounce. Unless short-term trends in these two factors translate into their own headwind versions, it will be difficult to see a northward spike in the yellow metal.
“Time to buy gold”
Meanwhile, Michael Burry, nicknamed “Big Short,” a hedge fund manager at Scion Asset Management, says it’s time to buy gold. Burry talks about the risk of crypto contamination following the FTX crash. Also, Burry comments in a tweet:
I have long thought that the time to buy gold will come when crypto crises become contagious.
