The pullback of the dollar temporarily relieved the pressure on the precious metal from the prospect of further rate hikes. In this environment, the gold price rose on Friday. Analysts interpret the market and share their forecasts.
“There is some short closing in the futures markets”
Spot gold gained 0.44% on Friday and closed the week at $1,715. The yellow metal retreated slightly after hitting its highest level since August 30 at the start of the session. U.S. gold futures, on the other hand, were last up 0.5% at $1,728.6. Jim Wyckoff, senior analyst at Kitco Metals, comments:
The US dollar index fell really hard overnight. This, in turn, supported the gold and silver markets. We also see some short closings in the futures markets, where the weekend is approaching.
“Money managers keep selling their positions”
Gold managed to attract fresh purchases on the last day of the week. However, TD Securities strategists expect the yellow metal to remain under downward pressure. Gold flirts with the breakout of a ten-year uptrend near $1,675, as the stars align for additional bearish in the precious metals, according to strategists. From this point of view, strategists make the following assessment:
Gold tends to perform better in the early stages of a gait cycle. However, it systematically underperformed when markets expected the actual level of the Fed funds rate to rise above the neutral rate. In contrast, the gold price has accurately captured the currently expected level of interest rates. However, it does not reflect the consequences of a sustained period of restrictive policy.
Strategists note that money managers continue to sell their positions. According to strategists, gold ETF holdings remain in a sustained downtrend that will soon erode all the safe-haven gains since the war in Ukraine.
“The probability of sustaining this rise in gold is low”
Meanwhile, the dollar slid to its lowest level in more than a week against its rivals. This has made dollar-priced bullion cheaper for offshore buyers. However, independent analyst Ross Norman notes that the gold market continues to see a slow and steady decline in exchange-traded funds (ETFs). It also says that trading volumes in the US futures markets continue to weaken. In this context, the analyst states that the probability of continuing this rise is low.
US inflation data in focus for gold price
Recent hawkish comments from Fed Chairman Jerome Powell have strengthened the stakes for a major rate hike. After that, investors are now waiting for US August inflation data to be released early next week. Edward Moya, senior analyst at OANDA, comments in a note:
If consumer prices come in warmer than expected, selling pressure is likely to target the $1,680 region. On the other hand, a sharp slowdown in price pressures is likely to provide only modest support for gold.
“We are not optimistic about the gold price in the rising interest rate environment”
Sugandha Sachdeva, vice president of commodity and currency research at Religare Broking, comments on the developments as follows:
The dollar index will cool a bit as other major central banks also opt for super-high interest rates. This will lead to more investment demand for safe-haven gold. We are not very optimistic about the gold price in the rising interest rate environment. However, we see a bounce towards the $1,770 level.
“The next big catalyst for the gold price: US CPI”
cryptocoin.comAs you follow, the ECB increased interest rates by 75 basis points (bps) on Thursday. Thus, it raised the euro, promising further increases to rein in inflation. DailyFX currency strategist Ilya Spivak explains:
US CPI data will be the next big catalyst for gold. Also, a big focus is whether it will encourage the Fed further. The Fed is strongly committed to fighting inflation. In addition, he is hopeful that it can be done without the very high social costs.
“These provide support to keep gold above $1,700”
According to Kinesis Money market analyst Rupert Rowling, this week’s gold price action shows that gold has now found its natural level. Accordingly, the analyst explains his views as follows:
The threat of a global recession and the ongoing war in Ukraine provide enough support to keep gold above $1,700 despite the strength of the US dollar and the possibility of much more rate hikes in the coming months. For the price to move significantly, the Fed must greatly exceed expectations. Or the constrictor will need his next move.
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