Federal Reserve Chairman Jerome Powell tried to calm the markets. However, despite this, the gold price rose with the intensification of the turmoil in the banking sector.
Powell said it’s okay with banking, but…
The renewed tide in the banking industry was the exact opposite of the reaction Powell had predicted in a speech to reporters on Wednesday. cryptocoin.com As you follow, the Fed increased interest rates by another 25 basis points. However, it signaled a potential pause in June. Later, Powell assured the market that the banking sector was “solid and resilient.”
The biggest change in the Fed’s May statement was the decision to remove the phrase “some additional policy tightening may be appropriate”. Powell stated that from now on, the Fed will take its decisions at a meeting. It also said it would base its assessments on incoming data and loan terms. Also in the question section, journalists pressed Powell on how credit tightening caused by banking sector stress affected monetary policy decisions. According to Powell, the Fed’s focus will be on monitoring small and medium-sized banks.
Many market experts disagree with the Fed’s view. He emphasizes that the decision to keep interest rates high will exacerbate banking problems. DoubleLine CEO Jeffrey Gundlach said in a statement Wednesday:
Leaving interest rates so high will perpetuate this stress. There will most likely be more regional bank failures.
TD Securities is waiting for a new record for gold price!
Meanwhile, with the increasing stress in the banking sector, investors turned to safe havens such as gold. Daniel Ghali, senior commodity strategist at TD Securities, comments:
The overnight meltdown in prices in conjunction with continued stress in the banking industry has revealed that traders are willing to distribute their dry powder stocks. Our discretionary trader position indicator still shows that this group has not yet joined the rally below it.
TD Securities says the market will continue to price rate cuts into next year. He also claims that this will also support gold to $2,100 later this year. “This feeds into the view that gold markets may have entered a new bull market with prices close to all-time highs,” Ghali comments.
Gold price on the brink of a new bull market
According to some analysts, the growing consensus in financial markets that the Fed has completed its tightening cycle will continue to support a sustained move in gold to all-time highs. While there is solid bullish momentum in the market, analysts warn investors that the precious metal could see higher volatility as persistent inflation could force the Fed to maintain its high monetary policy longer than expected.
Commodities analysts at TD Securities are not underestimating the gold rally as the price has the potential to move higher. The market expects the Fed to cut rates as early as September and over the next year. That’s why analysts state that gold is on the verge of a new bull market.
Gold’s short-term path is choppy, but…
But some analysts warn that Fed Chairman Jerome Powell is signaling that the committee still isn’t ready to cut rates this year, even as the central bank has stalled. Ole Hansen, head of commodity strategy at Saxo Bank, says Powell’s stance is not particularly bullish for gold. However, the market largely ignored the Fed’s stance. He also focused on the fact that interest rates will not rise. Based on this, Hansen makes the following statement:
The market is waiting for data or developments that support or change the current interest rate trajectory. In this environment, gold’s short-term path is likely to remain volatile, especially if inflation concerns return to challenge such rate cut expectations.
However, Hansen adds that he maintains his long-term bullish expectation for gold. He notes that the current banking crisis, further weakening of the US dollar, strong central bank demand, persistent inflation and ongoing geopolitical uncertainty are factors that provide long-term support for gold.
Green light to wait for ATHs in terms of this gold price!
Some analysts say the Fed’s neutral stance on monetary policy will allow investors to focus on other bullish factors for gold, particularly its safe-haven appeal as the global banking crisis continues to unfold. Nicky Shiels, head of metal strategy at MKS PAMP, highlights the following:
Overall, there was nothing in the FOMC to derail the bullish rhetoric or trend of gold. While some (but not all) Fed pause expectations have been priced in, this is a green light to wait for ATHs, given the pre-Fed super-supportive ground and the ability of bull markets to refocus on other potential drivers.
This is needed for gold to break the $2,100 resistance!
Ipek Ozkardeskaya, senior analyst at Swissquote, says gold’s rally will depend on the trajectory of bond yields, which will be affected by the Fed’s monetary policies, the ongoing banking crisis and the tightening of credit conditions. In this context, Özkardeskaya shares the following comment:
At current levels, the upside potential mostly depends on what happens on the US yields front. There is a strong negative correlation between US returns and the price of gold. We see that this correlation is even stronger in a period of increased bank stress. Therefore, it is possible that a potential increase in bank stress may support gold. However, gold needs persistent downward pressure on US yields to reach and surpass the $2,100 resistance.
It is likely that the price of gold will rise above $ 2,100
What will be gold’s next target after hitting an all-time high? Analysts say investors should consider $2,100. “The strength is very strong for gold,” says Edward Moya, senior market analyst at OANDA. In addition, the analyst makes the following assessment:
The real economy will be hit hard by what we see in the financial sector. This will keep the demand for safe harbors high. The gold price will shine given this macro backdrop. If the risk aversion mood on Wall Street continues over the next few sessions, gold will likely climb above $2,100.
