Gold prices rose on Tuesday as a weaker dollar boosted bullion’s appeal to offshore buyers. However, risks from the Fed’s upcoming major rate hikes have limited further gains. Analysts interpret the market and share their forecasts.
“No major trigger for gold in the near term”
Spot gold is flat at $1,650 at the time of writing. U.S. gold futures were last traded at $1,657.50, down 0.4%. The dollar index (DXY) slumped to a 1.5-week low as sterling rose after Britain’s dramatic U-turn on the tax cut mini-budget that rattled global markets.
Jigar Trivedi, senior analyst at Mumbai-based Reliance Securities, says gold’s rise on Tuesday was mainly driven by weakness in the dollar. However, Trivedi also underlines the following:
Investment demand and individual demand quieted down. There are no major triggers that could push prices above $1,700 in the near term. Concerns about rate hikes remain.
“An important driving force is required for the gold price to rise”
The holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 939.10 tons on Monday. This is the lowest level since March 2020.
cryptocoin.com As you can see in , the sharp rate hikes in the US increase the opportunity cost of holding gold without yield. Also, gold is down nearly 10% so far this year as dollar and bond yields rise. Stephen Innes, managing partner of SPI Asset Management, says it takes a significant push to send gold higher. He notes that this could be a significant drop in 10-year returns.
“There will be a struggle for the recovery of gold”
Meanwhile, last week’s data showed that inflation rose strongly in September. After that, markets expect a fourth Fed rate hike of 75 bps next month. Spot gold looks neutral in the $1,641-1,658 range, according to Reuters technical analyst Wang Tao. The analyst also notes that escaping from here would likely suggest a direction.
“The dollar is significantly low… its yields are falling,” says Bob Haberkorn, senior market strategist at RJO Futures. He also states that there is ‘safe haven demand with high geopolitical risks’. The analyst also mentions the following points:
However, although there are many question marks in the world, there will be a struggle for the recovery of gold. Investors want security. However, it’s also hard not to get into Treasury bonds with rates rising so fast.
“It is possible for gold to beat short squeeze like this”
In a note, TD Securities underlines that quantitative tightening (QT) continues to deplete liquidity in global markets, putting pressure on global assets due to tightening monetary policies and slowing growth prospects, which will increasingly restrict other central banks before tying the Fed. Analysts include the following evaluations in their notes:
These, in turn, are putting pressure on gold prices despite increased recession risks. It also supports the dollar’s rise. That’s because the rising persistence of inflation suggests that the Fed is unlikely to prudently stop the march. However, in the short term, the recovery in risk assets, supported by stabilizing bond signs, is adding to the pressure on precious metal shorts. However, gold prices need to rise above $1,750 to expand the short squeeze.
“The dollar index is the most influential factor on the gold price”
Gold prices rebounded a bit on Monday. However, investors expect the Federal Reserve to continue raising interest rates through the first quarter of 2023, potentially worsening the expected situation. Thus, hopes for a lasting recovery for the yellow metal have faded. Naeem Aslam, chief market analyst at AvaTrade, comments:
The most influential factor in the gold price is the dollar index. It’s pretty clear that the Fed will continue to raise interest rates. There are no signs that they will slow down their monetary policy anytime soon.
“It is possible that this will support gold as the economy falters”
“There is no doubt that traders are hoping that peak inflation and rate pricing is almost in sight,” Craig Erlam, senior market analyst at OANDA, wrote in a daily note. The analyst continues his assessment as follows:
Overall, recent economic data give reason for much optimism. However, this is likely to change in the coming months, with central banks certainly no longer too far from terminal rates. This could support gold, especially as the economy falters. Also, failure to break September lows is likely to encourage some traders.
