Gold prices made a surprise rally on Wednesday. However, expectations for further US rate hikes and a weak outlook for global economic growth slumped on Thursday as the dollar was bolstered. Analysts interpret the market and share their forecasts.
“We expect a relief rally from gold towards $1,680”
Spot gold rose nearly 2% on Wednesday, posting its biggest daily gain since March. However, it declined on Thursday. At the time of writing, the yellow metal was down 0.26% at $1,655.42. U.S. gold futures fell 0.54% to $1,660. Michael Langford, director of corporate consulting firm AirGuide, comments:
Strong US dollar presses… The market is looking for certainty and stability that seems insufficient lately. Our expectations are for gold to make a relief rally towards $1,680 without any new information or market events.
“Investors are moving towards dollars instead of gold”
cryptocoin.comAs you can follow, the dollar index (DXY) rose 0.2% on the support of renewed pressure on the sterling. Thus, it continued to move towards the peak of the last 20 years. The benchmark 10-year rates are also moving towards their recent multi-year peaks.
Gold is traditionally regarded as a hedge against inflation and economic turmoil. However, its prices have dropped 20% since hitting the key $2,000 level in March. Because rapid US interest rate hikes have reduced the attractiveness of the unproductive metal.
Peter Fung, head of trading at Wing Fung Precious Metals, says higher interest rates are moving investors towards the dollar rather than gold. He also notes that it has been causing constant outflows from ETFs (exchange-traded funds).
“With the decline in the dollar and interest rates, gold prices eased a little”
On Wednesday, the dollar pulled back after scaling a new two-year high. This made the bullion cheaper for offshore buyers. Meanwhile, US Treasury yields eased a bit. High Ridge Future metal trade director David Meger comments on the developments as follows:
With the decline in the dollar and interest rates, gold prices moved from these low levels. Factors related to Russia and the annexation discussion probably gave the gold market a bid from a safe-haven perspective.
Also, TD Securities wrote in a note, “The UK’s long-term Gilts purchase plan has caused interest rates to weaken. That’s why gold prices are seeing some relief.” Senior analyst Jim Wyckoff highlights the following in the daily commentary:
The calendar is set to return to a turbulent October for the stock and financial markets. Hence, gold prices rose on Wednesday amid safe-haven purchases in a very tense market. Gold prices had dropped to their lowest level in almost two and a half years overnight. Despite this, traders and investors are watching the currency markets very closely.
“These will keep gold prices in the split range market”
However, gold has not benefited from the recent debacle in equities. “This swing between dollar headwinds and growth concerns will likely keep gold in a gapping market torn between growth fears and higher interest rates,” Goldman Sachs said in a note.
In a market update, OANDA senior market analyst Edward Moya says gold prices welcome the Bank of England’s “dramatic intervention that averted an impending jolt and sharply lowered global bond yields”. The analyst comments:
This was somewhat expected. It’s a reminder that when the global bond market sells out, gold will be fine.
“Gold prices hold up well amid all this uncertainty”
BullionVault research director Adrian Ash says gold “continues to be kicked by the dollar.” However, “Wednesday’s gold rebound highlights just how strong the dollar has been this month,” he says. Ash further notes that gold’s recovery “followed a sharp decline in bond yields driven by the Bank of England’s sudden involvement with a number of Asian central banks to intervene in markets.” In this context, the analyst makes the following assessment:
The fact that major economic policymakers are trying to stop and reverse market movements shows how worried they are about an uncontrolled collapse. Gold prices hold up well amid all this uncertainty.
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