The gold market finds support at the $2,000 level as volatile market expectations once again change that the Federal Reserve will raise interest rates at least once again next month. However, according to a market analyst, falling below this critical physiological level should be considered as a strategic buying opportunity.
Markets can’t handle Fed’s aggressive tightening
cryptocoin.comAs you follow, the yellow metal is trying to find support at the $2,000 level. Nitesh Shah, head of commodities research at WisdomTrees, said in an interview that gold is well supported around $1,900 as financial markets will remain unstable until 2023.
The bullish outlook remains despite gold starting the week off slightly as technical selling pressures pushed prices down 1% on Monday. Although tensions in the global credit market have eased since the collapse of two major regional banks in the US and Credit Suisse, one of Europe’s largest banks, Shah says the biggest banking crisis since the 2008 Great Financial Crisis is not over yet. Shah comments:
After more than a decade of loose monetary policies and cheap liquidity, financial markets are not in a position to handle the Federal Reserve’s aggressive tightening cycle. Investors do not know which bank or market will go bankrupt next, but the disruption created by the rapid transition from quantitative easing to quantitative tightening significantly increases the risk of further problems in financial markets.
Gold under $2,000 still looks cheaper
Nitesh Shah says that in this environment, gold is an important strategic risk asset and should be seen as a key “insurance” policy for investors. In this context, he makes the following statement:
At under $2,000, it’s definitely worth putting some gold in your portfolio while you wait for some of these risks to materialize. Gold below $2,000 still looks cheaper as financial market risks rise.
Shah warns the precious metal will be choppy
While gold will remain an attractive risk asset, Shah warns the precious metal will remain volatile as the Federal Reserve steers monetary policy in a sea of boiling uncertainty. The Federal Reserve thinks it can hold interest rates at a high level for most of 2023 as it ends the tightening cycle. However, Shah notes that central banks do not have a perfect track record of maintaining stagnation for long. Based on this, Shah comments:
History seems to indicate that the Fed is basically raising until the end of a crisis. It goes too far on the path of ascension and then has to cut it. Now there is a sharper focus on the fragility of the financial system.
This environment will continue to provide long-term support for gold!
Shah’s prediction of a sharp turn in US monetary policy is also in line with rising market expectations. According to the CME FedWatch Tool, markets are starting to relax about the Federal Reserve’s last rate hike next month. However, the markets also think that interest rate cuts will come before the end of the year.
While the Federal Reserve is expected to end its most aggressive tightening cycle in more than 40 years, Shah says it’s unlikely that the central bank will bring inflation back to its 2% target. He adds that structural changes in the global economy may keep inflation high in the foreseeable future. Shah notes that this environment will continue to provide long-term support for gold. He states that high inflation will reduce real yields, which will put pressure on the US dollar and remove a troubling headwind in the precious metals market.
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