Gold finished Friday under heavy selling pressure. Next week is all about monetary policy. With the fourth 75 basis point rate hike expected on Wednesday priced in, the real question is whether the Fed will slow the rate hike after its November meeting.
What happened in the gold market?
A few data shows that some central banks, including the Bank of Canada, are moving to smaller rate hikes. cryptocoin.com As we reported, this points to slower growth and an impending recession. Michael Pearce, senior economist at Capital Economics, used the following statements on this subject:
Has the most intense phase of the global monetary tightening cycle passed? The Fed is expected to make its fourth consecutive 75 basis points increase next week, but this increase may come with signs of moderate tightening. This will follow the Bank of Canada’s 50 basis point downshift this week.
Switching to a slower rate of rate hikes would be positive for gold. That’s why some analysts are looking more bullish on the precious metal. “The Fed will start to give up on aggressive rate hikes,” said Daniel Pavilonis, senior commodities analyst at RJO Futures. According to Pavilonis, the Fed acted very quickly in raising interest rates. According to the analyst, there may be talk of a step back at the next meeting. In addition, Pavilonis pointed out that gold is not priced very well in dollar terms. He says that if the dollar falls, gold will move quite well.
There are also those who argue that the Fed will continue to increase interest rates.
However, not all are convinced that the Fed will be willing to take their foot off the gas. “There are more signs of weakness,” said Edward Moya, senior market analyst at OANDA. According to the analyst, investors are worried about pricing it. But that won’t be an easy call to downshift. “The markets are getting complacent here,” Moya added. Markets are still at risk of being affected by a strong labor market announcement and the November inflation report. Moya says that the next week will be fluctuating due to these developments. The analyst uses the following statements:
Despite all the catalysts, gold will stay here for a while. I hesitate to participate in pivot talks just yet. Many Fed speakers support the move to 50 basis points in December, but I think we’re entering a volatile market too.
Meanwhile, the Bank of England will decide on interest rates next week and market expectations range from 100 basis points to 50 basis points.
What does it take for the Fed to stop interest rate hikes?
The terminal interest rate, which shows how much the Fed wants to raise interest rates, is also very important for the markets. Many analysts do not think the Fed will stop until it reaches 5 percent. At the last meeting, the Fed’s forecasts showed rates rose 4.4 percent this year and 4.6 percent next year. After next week’s meeting, expectations are that the Fed would raise interest rates by 375 basis points this year, raising the fed funds rate to 3.75-4 percent. ING international chief economist James Knightley used the following statements:
Unfortunately, the data is not moving in the right direction. For the Fed to meaningfully soften its pace, we need to see core CPI increases slow on a monthly basis. At this stage, we’re not sure this will happen at the December FOMC meeting, so we’re more likely to see a fifth 75 basis point increase compared to our current 50 basis point view.
Support and resistance levels for gold
Gold’s support levels fell from $1,675 to $1,620. MKS PAMP metals strategist Nicky Shiels said that so far this level has been maintained despite a stronger US dollar and higher Treasury yields. At the time of this writing, December Comex gold futures were trading at $1,644.10, down 0.7 percent week on week. Shiels used the following statements:
Prices underperformed risk assets overall throughout October, but remained well into the month’s end given the wealth devastation in Chinese and US tech. Flows were fairly neutral overall, with prices dropping by just 1 percent on a monthly basis.
Important data for next week
- Tuesday:US ISM manufacturing PMI
- Wednesday:US ADP nonfarm payrolls, Fed rate decision, Powell press conference
- Thursday:Bank of England interest rate decision, US jobless claims, US ISM non-manufacturing PMI
- Friday:US non-farm employment
