Data on Friday showed that core inflation data remained high. Thus, it strengthened expectations for another high rate hike by the Fed next week. Gold fell more than 1% after that as dollar and bond yields soared. Analysts interpret the market and share their forecasts.
“Gold has been a bit of a disappointment this week”
Spot gold fell 1.09% to $1,644.99 on Friday. U.S. gold futures, on the other hand, were last down 1.3% at $1,644.8. Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6% last month, the Commerce Department said. Tai Wong, senior trader at New York Heraeus Precious Metals, comments:
There are concerns that the core PCE at 0.5% monthly or 6% year-on-year will keep the Fed relatively more aggressive and that the slowdown in increases will come later rather than sooner. Gold has been somewhat disappointing this week, given the massive bond rally and the dollar’s downside. Moreover, he should have seen prices heading towards $ 1,700.
“If that happens, it could lend some tailwind to the gold price”
The dollar gained 0.3% against its rivals after US economic data. Thus, it made gold more expensive for other coin holders. Meanwhile, benchmark US Treasury rates also rose. Markets expect the Fed to raise interest rates by 75 basis points at its policy meeting on November 1-2. For December, traders are largely expecting an increase of 50 bps. In a note, Commerzbank analysts highlight:
After US inflation remained stubbornly high in September, markets are generally expecting another significant rate hike of 75 bps. However, if central bankers imply that they will raise key interest rates at a less aggressive rate in the future, it is possible that they will lend some tailwind to the gold price, for example, in response to the economy’s cooling.
“Fear of recession will give gold the much-needed boost”
Vandana Bharti, vice president of commodity research at SMC Global Securities, points to the upward movement in the dollar due to the Fed meeting, which is expected to increase by 75 bps. Therefore, he notes that gold will likely see some correction. In addition, the analyst says:
However, the fear of recession grows stronger as time passes. This will likely give gold the much-needed boost. Also, it will limit the negative side.
“Yellow metal will stay in this range until there is a result from the Fed”
Jigar Trivedi, senior analyst at Mumbai-based Reliance Securities, says investment demand for gold is still weak. He also notes that the outlook for gold is still on a downward trend, with individual demand not being aggressive either. In this context, the analyst makes the following statement:
The yellow metal will likely trade in the $1,640-1,660 range until a result comes from the Fed.
“Gold expects a better year in 2023”
cryptocoin.comAs you follow, the Fed is likely to announce another 75 bps increase next week. However, traders expect a half-point increase in December. Expectations for a more dovish Fed were bolstered by data showing third-quarter consumer spending dropped to 1.4% in the US, providing new evidence that the economy is starting to cool.
The Fed’s sharp rate hikes since March pushed gold down 9% this year. Because that increased the opportunity cost of holding zero-yield bullion, it also boosted the dollar. City Index analyst Matt Simpson comments:
Gold expects a better year in 2023. Because the Fed pivot will have to come to a point. Also, chickens may return to the nest as economies falter in a high-interest environment. So, it is possible for gold to recover with the support of safe-haven demand.
“Gold more likely to consolidate at $1,650”
Analysts at Sevens Report Research say real interest rates should decline with an easier monetary policy stance. They also note that the point where the Fed reached the top of the falconry was a good buying opportunity for gold. Kinesis Money market analyst Rupert Rowling draws attention to the following in his daily market comments:
On Thursday, the ECB doubled its benchmark rate, reminding investors that the course of the interest rate curve will continue to climb for a few more months, albeit at a slower pace. So while the Fed’s and other central banks around the world’s ability to curb aggressive rate hikes earlier than initially feared has given gold some relief, it remains an environment in which rates are still rising. Therefore, with a lack of dividends, it is unlikely that gold will continue to make significant gains. Gold is more likely to consolidate at the current $1,650 level.
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