Gold started the week with a strong push of $1,650. However, the yellow metal lost its momentum towards the end of the week. Analysts interpret the market and analyze the technical outlook of gold.
“Until a clear view from the Fed, investors will stay on the sidelines”
cryptocoin.comAs you follow, gold closed the week down 1.09% amid rumors that the Federal Reserve will signal its readiness to slow down its aggressive monetary policy rate hikes next week. Hope remains as abstract as puffs of smoke. We found that this pattern continued throughout the summer. Because investors were caught chasing the elusive ‘Fed pivot’.
Although the sensitivity in the gold market is slightly up, there is not much opinion in the market. The Federal Reserve’s monetary policy decision continues to dominate the price action of gold. Also, no one wants to bet in any way right now. Ole Hansen, head of commodity strategy at Saxo Bank, comments:
Speculators and investors will likely stay on the sidelines until we get a clearer view of the thinking within the Federal Reserve. That’s why next week’s FOMC meeting is very important.
“Fed will keep raising rates until something breaks”
A change in the Federal Reserve’s monetary policy remains unclear. However, the expectation that aggressive action will end has become somewhat more tangible after the Bank of Canada eased less than expected this week. The BoC made a surprising move, raising interest rates by just 50 basis points instead of 75. The ‘pigeon rate hike’ came as the central bank lowered its growth forecasts as recession fears continued to mount.
However, the difference between Canada and the US is that the economy south of the 49th parallel is much more resilient. The first data of the US Gross Domestic Product for the third quarter shows that the economy grew by 2.6%. According to consensus estimates, economists had expected to see an increase of 2.4%. The increase in activity came after two negative figures of -1.6% and -0.6% in Q1 and Q2, respectively. At the same time, data on Friday suggest that higher inflation remains a persistent threat. The US core personal consumption expenditures price index rose 5.1% for the year in September. This is well above the Fed’s 2% target.
Rather than trying to hit the hard pivot, many analysts recommend that investors look at gold as a long-term investment and a safe asset. Axel Merk, chief investment officer and Chairman of Merk Investments, says the Fed will continue to raise interest rates until something breaks. He notes that when this happens, he may want to hold onto some gold. As to where that breaking point lies, many economists, including Merk, see a recession as inevitable. Gold remains an attractive safe-haven asset. However, it is not without competition.
It will be a busy week for gold
According to Commerzbank strategists, it is possible for gold to flourish if the market prices future rate hikes to some degree. However, they see virtually no recovery potential for gold unless the end of aggressive rate hikes is over. Therefore, according to their strategists, next week’s Fed meeting is likely to have a significant impact on the gold price trend. From this point of view, strategists make the following assessment:
After US inflation remained stubbornly high in September and core inflation climbed to a 40-year high of 6.6%, another overall rate hike of 75 bps is possible. However, if central bankers imply that they will raise their key rates at a less aggressive pace in the future, they may lend some tailwind to gold.
Gold weekly technical analysis
Market analyst Christopher Lewis draws the technical picture of gold as follows. Gold initially tried to recover during the week, but pulled back again. The yellow metal found sufficient resistance near the $1,680 level. Remember, the US dollar has a huge impact on what happens to gold. So as it rises, gold will typically fall. If it breaks below the candlestick bottom for the week, then it is possible to look at the $1,620 level where it formed a bit of a double bottom. If it’s going to go down there, it’s probably going to go much lower.
I do not expect this to be the case in the short term. But if the Fed sounds more hawkish than expected on Wednesday, that could be the catalyst for the screech on the downside. Obviously, it works both ways. So if we see the Fed suddenly dove, it is likely to send gold much higher.
I think the only thing you can count on is a lot of volatility. However, given enough time, some kind of longer-term decision will have to be made. In the short term, we seem comfortable going back and forth and actually doing nothing. However, with the current state of things going, it’s clear that he’s much more comfortable going lower than higher. So most traders will look at it through the prism of shorter-term charts, where they will benefit from the value in the US dollar and the short gold market.
However, a little patience will probably go a long way in this scenario. So keep in mind that we have a lot in the market that could potentially move the market in both directions. So remember to be more careful with your position sizing than anything else.
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