Gold prices fell to a four-month low as Federal Reserve Governor Jerome Powell put on a hawkish tone during his two-day testimony before Congress. Looking at the broader landscape, however, one market strategist says that despite strong headwinds, gold continues to show relative strength as US monetary policy is only a minor element driving the gold market. Another analyst says that gold has entered a downtrend.
Gold buyers need to think about this a lot more!
George Milling-Stanley, chief gold strategist at State Street Global Advisors, says prices have a good chance of ending the year higher if the gold market continues to hold critical support around $1,900. The Fed did not change interest rates at its monetary policy meeting last week. Milling-Stanley notes that it is not surprising that the Fed continued its hawkish trend after this development. He noted that although inflation has fallen sharply from last year’s highs, it is still well above the 2% target.
Instead of looking at the short-term opportunity costs of holding gold in a rising interest rate environment, Milling-Stanley says investors should look at how gold can provide long-term protection and risk-adjusted returns. In this context, the analyst makes the following statement:
The fact that we have sticky and persistent inflation, and we’ve been experiencing it well above the Fed’s target for a while, I think is more important than looking at what the Fed is doing from meeting to meeting. There is still the possibility of a serious recession in this country. This could lead to a global recession. This is probably something gold buyers should think about a lot more.
Gold will continue to struggle in the near term
He says it wouldn’t be surprising if the Fed raises interest rates again this year, given the point of inflation. These comments echo the perspective of Powell, who says most Committee members expect to see higher rates by the end of the year.
George Milling-Stanley states that gold will continue to be difficult in the near term as the Fed continues its aggressive monetary policy. So, he says, investors should also consider the impact this has on stock markets and the threat of rising inflation. He also notes that the Fed’s monetary policy continues to put pressure on the US economy, reducing earnings. Based on this, the analyst makes the following comment:
I’ve been saying for a while that stock markets should fear a hawkish Fed and rising interest rates more than gold.
These are the support element for the yellow metal.
Alongside the rising stock market volatility, Milling-Stanley does not expect the Fed’s slowdown in rate hikes to give the US dollar any new momentum. He says this will likely give gold some support, too. Milling-Stanley adds that rising jewelery demand in China and India will also be another support factor for gold for the rest of the year.
The fact that central banks continue to buy gold at record speed also increases the support in the gold market. Milling-Stanley expects central banks to continue buying gold in the near future. “Emerging-market central banks have been behind the vast majority of purchases over the past 13 years. That’s because, on average, they hold more than two-thirds of their reserves in dollar-denominated debt. However, they hold less than 5% of their reserves in gold. It’s an imbalance they see as dangerous. They are doing their best to correct this imbalance,” he explains.
Finally, the analyst considers the investment demand. Milling-Stanley expects this segment of the market to revive as investors take advantage of lower prices. The analyst said, “As you know, if you are someone who is trying to keep the amount you set aside for gold at a constant level, you need to buy a little more as the gold price drops. Because otherwise, you won’t be able to reach the 5% or 10% level. A simple rebalancing will tell me that I should buy at this level when the price has risen quite a bit this year,” he says.
There is solid support in this region for the precious metal
The analyst also looks to the argument that his horse continues to disappoint as it fails to hold above $2,000. Again, Milling-Stanley says investors should look at the big picture. He states that in October alone, gold prices tested long-term support at $1,680. All in all, despite the latest correction, gold prices rose 14.5% from 2022 lows. The analyst explains his views on this issue as follows:
Last year, we were talking about a very, very solid price support in the region of $1,600 to $1,650. Now that we haven’t dropped below $1,900 so far this year, I wonder where the support is now. Has support actually moved from the $1,600 region to the $1,900 region in just 12 months? So, did the support area move upwards of $300? We’ll see how that turns out. But at least, if you break the 1,900 zone, there is another very, very solid support layer below it around $1,800, $1,850.
Gold enters a downtrend
cryptocoin.com As you follow, central banks have been rapidly increasing interest rates since 2022. Yesterday, the Bank of England raised interest rates by 50 basis points. Thus, it made the 13th consecutive rate hike. In addition, the bank signaled that it will continue to increase the interest rate if needed. The Fed, on the other hand, has finally put an end to its streak of raising interest rates. However, he did not rule out the possibility of further increases in the coming months. As a result, the precious metals market suffered significantly. Senior analyst Jim Wyckoff comments on the latest developments as follows:
Central banks are in focus in the last days of this week and still show hawkish trends in monetary policy. This means a decline for precious metals markets, both in terms of demand and as yields rise, making competing asset classes, government bonds, more attractive.
Gold price / Source: TradingView
