The gold price slackened on Tuesday ahead of the Fed meeting, where investors will watch an update on the pace of the US central bank’s plans to reduce pandemic stimulus measures. The Fed will wrap up its two-day monetary policy meeting on Wednesday and announce expected decisions. For the hint, let’s recall that Chairman Jerome Powell said last month that the bank will focus on at least one measure to avert soaring inflation, which has reached its highest level since 1982. Analysts’ forecasts and expectations for gold cryptocoin.com compiled for our readers.
Chintan Karnani expects gold to surpass $1,800 before the end of the year
The Fed is “expected to start raising interest rates earlier than expected to control inflation,” Chintan Karnani, research director at Insignia Consultants, said in a statement. Therefore, he states that there was “repositioning” for the price of gold before the meeting, and that gold’s failure to break $1,800 “caused short-term traders to avoid gold.”
On the other hand, Chintan Karnani expects gold to rise above $1,800 before the end of the year, amid high safe-haven demand. However, his doubts remain as to whether the gold price can sustain a price action above this level.
“These developments can be punishing for the gold price”
According to Lukman Otunuga, head of market analysis at FXTM, if the Fed steps up on tapering, it could punish gold prices as the dollar appreciates, rates rise and interest rate hike prospects rise. In a statement, the analyst states that the support for the gold price is currently at $1,765 and the resistance is around the psychological $1,800.
Gold prices continued their decline shortly after data released on Tuesday showed the U.S. producer price index rose 0.8% last month, surpassing economists’ average estimate of 0.5% gains polled by The Wall Street Journal. The increase in wholesale prices in the last 12 months has increased from 8.8% to 9.6%, marking the biggest improvement since a major change in the index in 2009.
Meanwhile, the European Central Bank, the Bank of England and the Bank of Japan are also scheduled to hold meetings this week. “Markets will have a lot to chew on in the second half of the week,” said Edward Meir, analyst at ED&F Man Capital Markets in a note.
Of the three banks alongside the Fed, the Bank of England appears to be the furthest on the ‘hawkish path’. It passed raising rates last month, but this time it may do so. The Bank of Japan doesn’t have much of an inflation problem to worry about, as Japanese companies haven’t passed most of the cost increases to consumers, but still, some say it may signal a slight decline in the BOJ’s asset-buying program. But the central bank, I expect it to be ‘on track’.
Meanwhile, Edward Meir comments on the ECB that he was “most reluctant to act, still sticking to the mantra that inflation is temporary”.
“All this is negative for gold”
According to UBS analyst Giovanni Staunovo, US real interest rates rising on top of falling inflation expectations as measured by the strong US dollar and breakeven inflation rates are factors that keep gold below $1,800. The analyst makes the following assessment regarding the price action:
Market participants will be watching closely the upcoming Federal Open Market Committee meeting to see how the central bank will respond to high inflation, which will likely result in greater price movements.
The dollar stabilizes, limiting demand for bullion for buyers of other currencies. Meanwhile, US Treasuries are putting pressure on gold, rising from a one-week low touched in the previous session. “Some pre-FOMC positions appear to be flowing towards defense against interest rates,” commented SPI Asset Management managing partner Stephen Innes, highlighting:
Even on a hawkish pivot, if the Fed moves to three points, the gold price could close the year somewhere between $1,750 and $1,800. Two points, I think it has become supportive for gold. But for bullion investors right now, I don’t think there is a direct call for recovery.
Gold will be sluggish towards the end of the year as fundamentals remain on the weak side and next year the Fed cuts quantitative measures and carries out a potential rate hike, according to Hareesh V, head of commodities research at Geojit Financial Services in Kochi, India. The head of research states that all this is negative for gold.
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