US dollar and Treasury yields hit multi-year highs in anticipation of more aggressive rate hikes. This, in turn, reduced the appetite for the unproductive yellow metal. Thus, gold returned to its lowest level in 2.5 years on Wednesday. Analysts interpret the market and share their forecasts.
“None of this bodes well for gold”
Spot gold hit its lowest level since April 2020 at $1,6177.7. At the time of writing, it was trading at $1,617.81, down 0.68%. U.S. gold futures fell 0.34% to $1,625.9. DailyFX currency strategist Ilya Spivak comments:
In the background are expectations of higher rate hikes, a more hawkish Fed pricing, a strong US dollar and higher real interest rates… None of this bodes well for gold. $1,600 is the next big inflection point for the yellow metal.
“The probability of spot gold falling to these levels is high”
Chicago Fed President Charles Evans, St. Louis Fed Chairman James Bullard and Minneapolis Federal Reserve Bank Chairman Neel Kashkari reiterated the Fed’s commitment to focus on tackling rising inflation. Evans said the Fed should raise interest rates to a range between 4.50% and 4.75%.
Spot gold is likely to retest support at $1,619, according to Reuters technical analyst Wang Tao. Besides, a drop below this level is likely to drop to the $1,599 -1,607 region.
In a note, Jim Wyckoff, senior analyst at Kitco Metals, said gold prices also benefited from “corrective price rebounds from recent selling pressure and short-term collateral from short-term traders.”
“We are still in a pretty weak environment for gold”
Ryan McKay, commodity strategist at TD Securities, comments on the developments in the market as follows:
Today, there has been some rebound after some of the extreme weakness seen in recent days. However, I don’t think there’s really a radical change in the gold market. An aggressive Fed and some Fed speakers during the week are likely to drive home the point that rates will be higher for longer. We are still in a rather weak environment for gold.
“Gold is likely to drop below the $1,600 level”
cryptocoin.comAs you follow, gold fell to its lowest level in 2.5 years, around $1,614. According to TD Securities strategists, a combination of factors is in place to exert more downward pressure on the yellow metal. In this context, strategists draw attention to the following points:
The yellow metal price remained below pandemic-era levels. As such, few families and proprietary trade offices are feeling the pressure to surrender in increasingly over-inflated and unregistered gold positions. Markets are now pricing in the potential for higher interest rates to persist for a while. However, a steady stream of Fedspeak is likely to drive this point home. In this sense, our analysis shows that gold prices will fall further in the next phase of the walking cycle.
“Yellow metal will be around $1,620 by the end of the year”
Rising real interest rates and the strong US dollar are curbing investment demand for gold. Strategists at ANZ Bank expect the yellow metal to hover around $1,620 by the end of the year. The macroeconomic backdrop for gold remains challenging, according to strategists. Strategists make the following statement:
In the short term, the combination of rising interest rates and a strong USD will hurt investment demand for gold. We expect more outflows from gold ETFs as the US Fed continues its aggressive tightening path. Therefore, we expect the price to drop to $1,620 by the end of the year.
“Gold seems to have lost its safe-haven role against the USD”
Commerzbank strategists say the main culprit for the yellow metal’s woes is the strong US dollar. From this point of view, strategists underline the following points:
The US dollar has once again hit a 20-year high on a trade-weighted basis. It’s also putting tremendous pressure on gold, with significantly higher bond yields. Gold has lost its role as a safe haven for the USD, which has promised substantial returns, at least in nominal terms, thanks to the Fed’s rate hikes. A look at gold in euro reveals that the decline in gold is primarily dependent on the strength of the dollar. Because gold in euro actually rose a little. It is trading at the beginning of September with approximately 1,700 Euros.
“Nothing new under the golden sun”
Money managers have reduced their long positions in the gold market for the sixth consecutive week. Therefore, strategists at Société Générale expect the yellow metal to continue to be in scarce demand. Strategists describe their expectations as follows:
Gold’s downtrend continued with a bearish influx of $3.1 billion. This marks the sixth consecutive week of declines for bullion. The US Fed’s rate hike supports the dollar. This makes gold less affordable to non-US buyers. Thus, it reduces demand. During this period, the Indian rupee and the Chinese renminbi lost 0.77% and 1.27% against the dollar, respectively. As India and China are two important gold markets, it is possible that this will put more weight on demand.
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