The dollar has appreciated again, making dollar-priced bullion more expensive for offshore buyers. Thus, gold prices gradually fell from the one-week high recorded in the previous session on Wednesday. Analysts interpret the market and share their forecasts.
“The market is very quiet as it is in a holiday mood”
cryptocoin.com Spot gold rose more than 1% on Tuesday after the dollar’s slump. However, it fell 0.2% to $1,813.55 on Wednesday. U.S. gold futures were down 0.1% at $1,823.60. Ajay Kedia, director of Kedia Commodities, Mumbai, comments:
Gold is seeing a slight pullback after yesterday’s rally. The market is very quiet due to the holiday mood.
“This is necessary for a more tangible recovery in gold prices”
Last week, Federal Reserve Chairman Jerome Powell said the Fed would raise more interest rates next year, even as the economy slides into a possible recession. Rate hikes typically put pressure on gold, says OCBC FX strategist Christopher Wong. However, as the Fed enters the late cycle of tightening, he notes that a recovery for gold is possible. In this context, the strategist makes the following statement:
However, a more tangible recovery in prices will likely require more than a calibration in Fed tightening, possibly pausing and perhaps lowering interest rates.
This means the ‘perfect storm’ for gold!
The Bank of Japan (BoJ) decided to review its yield curve control policy. After surprising markets with this decision, the yen rose to a four-month high against the dollar. Weaker housing data is leading to safer purchases in precious metals, says Bob Haberkorn, senior market strategist at RJO Futures. He also notes that this, along with the BOJ’s decision, was the “perfect storm” this morning.
Gold has lost more than $260 since its March peak as central banks stepped up efforts to combat rising inflation. However, it is experiencing its best quarter since the beginning of 2020, up 9.4% so far. Jeffrey Sica, CEO of Circle Squared Alternative Investments, comments on the possibility that the Fed will continue to raise interest rates:
I see it will cast a dark shadow on the gold market. However, I still think we are moving upwards.
“These continue to be headwinds for gold investors”
Rob Haworth, senior investment strategist at Bank Wealth Management, says gold prices jumped in mid-week amid weak inflation data and hopes that the Fed will soon end its rate hikes. However, Haworth points out that:
The hawkish announcement by the Fed late Wednesday weighed on gold as investors were pricing in a higher final interest rate. The Fed’s latest economic forecasts show that top Fed officials expect to keep interest rates above 5% by 2024.
Looking ahead, Haworth says data on higher interest rates and softer inflation continue to be headwinds for gold investors.
“Two factors indicate that gold will see a strong rise”
Higher interest rates typically favor dollar and Treasury yields. Thus, it makes non-returning assets such as precious metals less attractive in comparison. Adrian Ash, BullionVault’s director of research, comments on the latest developments:
The increase in interest rates with the dollar reduces the attractiveness of gold as an unyielding protection tool of the dollar. Still, the resistance in bullion prices this year stands in stark contrast to the crash in 2013. It also contrasts with the worst year in living memory for stock/bond portfolios.
Adrian Ash believes that the value of gold as a portfolio diversifier will attract attention around the new year, “both because of seasonal rebalancing and because January brings Chinese New Year and is currently the busiest single gold-buying festival in the world.” These two factors mean that gold will typically see a strong rise in January.
“Precious metals fall as real returns are positive”
Looking ahead, however, the forecasts of Matthew Miller, an equity analyst at CFRA Research, are bullish for industrial metals and slightly bearish for precious metals. “As long as real yields are positive and rising, precious metals are likely to underperform,” Miller says.
“A lower peak interest rate means bullishness for gold”
According to the report of Société Générale economists, gold rose after the Consumer Price Index (CPI) data. The yellow metal is currently trading above the $1,800 level. Economists make the following statement:
Inflation data in the US for November came in at 6.0% year-on-year of the core CPI, compared to analysts’ forecast of 6.1%. This was particularly supportive for gold as it was thought to further persuade the Fed to slow the pace of tightening at the FOMC meeting. Low inflation is typically bearish for gold. However, bullion has been receiving support from the Fed’s expectation of slowing rate hikes lately. Gold is a non-interest bearing asset. Therefore, a lower peak interest rate means bullishness for bullion.
