Gold price remained resistant for most of the week amid volatile market action. However, it suffered heavy losses on Friday, losing about 2% on a weekly basis. The economic picture will not release any high-level data in the first half of next week. Market analyst Eren Sengezer notes that traders will likely look for signs that signal the beginning of a technical correction.
Rising geopolitical tensions boost demand for safe haven
Prior to the highly anticipated central bank statements, gold started the new week relatively calmly. It consolidated the previous week’s losses in this direction. The yellow metal closed flat near $1,680 on Monday and posted modest losses on Tuesday.
cryptocoin.comOn Wednesday, Russian President Vladimir Putin announced a partial military mobilization. He also threatened nuclear retaliation, saying that the West wanted to destroy Russia. Rising geopolitical tensions have allowed the precious metal to find demand as a safe haven. Thus, the gold price climbed above $1,680 before losing its upward momentum in the second half of the day.
Fed said 75 bps, gold price saw hard sell
As expected, the Fed increased 75 basis points (bps) to the range of 3%-3.25%. The Summary of Economic Forecasts (SEP), called the dot chart, showed that policymakers’ median view of the policy rate at the end of 2023 was 4.6%, compared to 3.8% in the dot chart in June. Also, the median outlook for the federal funds rate at the end of 2024 increased from 3.4% to 3.9%. The hawkish slope seen in the SEP supported US Treasury bond yields. This forced the gold to go down. At the press conference, FOMC Chairman Jerome Powell acknowledged that there is no ‘painless way’ to tame inflation. “A delay in lowering inflation will only lead to more pain,” Powell said.
On Thursday, the dollar came under selling pressure. Also, the US Dollar Index (DXY) erased most of its post-Fed gains. In this direction, it helped gold to rise. The Bank of Japan (BoJ) left its monetary policy settings unchanged on Thursday. After that, the Japanese yen depreciated significantly against its main rivals. This triggered intervention in the foreign exchange market. The BOJ likely sold dollars to buy back the JPY to limit the currency’s depreciation.
DXY climbs to highs, pressure on gold price rises
Meanwhile, the Bank of England and the Swiss National Bank increased their policy rates by 50 basis points and 75 basis points respectively. After wild fluctuations in central bank announcements during European trading hours, markets calmed down during the American session. The 0-year US Treasury bond yield expanded its rally, not allowing gold to rise.
On Friday, disappointing PMI data from the euro zone and the UK caused the euro and the British pound to lose altitude. Thus, the dollar regained its strength. DXY hits 20-year high above 112.00. Gold price fell below $1,650 with the pressure of dollar replenishment. This marked its lowest level since April 2020. Data from the US showed that S&P Global Services PMI and Composite PMI rose sharply in early September. That put it one foot higher in DXY. It also forced gold to lag behind ahead of the weekend.
“In this scenario, the gold price may stage a recovery”
The Conference Board (CB) will release US Consumer Confidence data on Tuesday. The S&P 500 lost over 3% last week. According to the analyst, it is possible that an optimistic sentiment report could open the door for a recovery in US stocks. This is also likely to lead to a bearish correction of DXY. In this scenario, the analyst sees gold likely to stage a recovery. However, according to the analyst, these data alone do not significantly affect the market pricing of the Fed’s interest rate outlook. According to the CME Group FedWatch Tool, there is a 70% probability that the Fed will raise rates by another 75 basis points in November.
On Wednesday, the US Bureau of Economic Analysis will release its final data on annual Gross Domestic Product (GDP) growth for the second quarter. Investors expect Q2 GDP to contract by 0.6%, matching the previous forecast. According to the analyst, since this data will be a revision, it is unlikely to trigger a noticeable market reaction.
Investors will follow PCE and Fedspeak closely
Market participants will closely watch NBS Manufacturing PMI and Non-Manufacturing PMI data from China during Asian trading hours on Friday. The analyst says that if there is a meaningful recovery in the nu PMI data, gold bulls will see it as an opportunity to bet on a stable recovery. Ahead of the weekend, the Personal Consumption Spending Price Index (PCE), the Fed’s preferred indicator of inflation, will arrive. The analyst makes the following assessment:
Stronger-than-expected CPI data at the beginning of the month convinced investors that the Fed’s interest rate hike by 75 basis points in September. Since the PCE is a lagging indicator, its impact on the dollar’s valuation is likely to be short-lived. Regardless, a pullback in the annual Core PCE figure is likely to weigh on the dollar. Of course, the opposite is also true.
Investors will also be keeping a close eye on Fedspeak next week. The dollar’s overbought conditions suggest that any optimistic comments on the inflation outlook or comments that could be taken as less hawkish than Powell’s statement could pave the way for a deep correction in the dollar and help gold erode some of its losses.
Gold price technical view and gold forecast survey
Market analyst Eren Sengezer analyzes the technical outlook of gold as follows. Gold is trading near the lower boundary of the descending regression channel since March. Additionally, the Relative Strength Index is about to drop below 30, indicating oversold conditions. If gold starts to correct, it could be seen as an initial recovery target ahead of $1,660, $1,680, and $1,700. On the downside, a daily close below $1,640 is likely to introduce additional sellers. Continuing, gold is likely to extend its decline towards $1,630 and $1,615.
According to the FXStreet forecast survey, experts expect gold to enter the consolidation phase next week. Accordingly, the survey shows that the average target is $1,651. The one-month outlook, however, paints a mixed picture, with less than 50% of experts trending bearish versus rising 33%.
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