The gold market saw its biggest loss since May, down nearly 4%. So yellow metal once again limped into the weekend. Analysts interpret the developments in the market and share their forecasts.
Gold faces some major headwinds
There is hope among gold investors that this sell-off finally shakes up some of the unregistered longs left on the market. Many are anticipating this shake-up and want to add to their long-term bullish bets.
However, gold is facing some significant headwinds. So there is also the view that this could be the start of a larger movement. The biggest hurdle the precious metal faces is the Federal Reserve’s continued aggressive increase in interest rates.
US NFP beats expectations, recession fears ease
cryptocoin.comAs you can follow, the markets were already expecting the Fed to raise rates by another 75 basis points at the end of this month. These expectations pushed the US dollar to a 20-year high. It also pushed bond yields above 3%.
There’s not much to stop the Federal Reserve’s firm stance on inflation. Because the US economy created 372,000 jobs in June, and the data beat expectations. Recession fears eased on Friday after data showed that.
FOMC sees potential credibility issues on the horizon
While the fears had subsided somewhat, they were not completely gone. But that won’t stop the central bank from trying to contain inflation. This week, the minutes of the Federal Reserve’s June monetary policy meeting reveal that the Committee sees potential credibility issues on the horizon. The participants made the following statement in the minutes:
Many participants agreed that there was a significant risk the Committee faces that high inflation could become entrenched if the public began to question the Committee’s determination to adjust its policy stance as needed. In this regard, the participants emphasized that appropriate tightening of monetary policy together with clear and effective communication will be essential for restoring price stability.
“There is supply/demand imbalance in the physical gold market”
Another issue that continues to disturb the gold market is the complacency in the futures market. It seems that individual investors are priced out of the physical market.
Data from the US Mint shows that it sold just 44,000 ounces of gold in June, down 76% from last year. The surprising decline came as bullion demand remained strong for most of the year. According to some analysts, there is a supply/demand imbalance in the physical market that keeps premiums high. Analysts also say that lower prices could reset the market.
“Gold will likely follow until oil’s downtrend ends”
Finally, while investors pay attention to bond yields and the US dollar, they should also pay attention to oil prices. It was a bad week for gold. However, oil saw a sharper decline. It briefly fell below $100 a barrel. Oil has rebounded slightly, but if a recession approaches, it will be difficult for the market to hold current prices. Senior technical analyst Jim Wyckoff comments:
Crude oil prices are on a downward trend amid recession concerns. Therefore, gold will likely follow until oil prices stabilize and the downtrend ends. Historically high inflation should favor metals. At the moment, however, fears of a recession and lower consumer and commercial demand for the metals are eclipsing their bullish direction.
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