Critical Predictions from 9 Analysts: Where Are Gold Prices Heading?

Gold prices rose on Friday as the dollar fell. However, gains in the dollar throughout the week and expectations of a significant US rate hike kept bullion well below the key $1,700. Thus, the yellow metal saw its worst week in four weeks.

“Gold prices failed to capitalize on US recession fears”

Gold prices fell to their lowest level since April 2020. The yellow metal closed last week with a loss of about 2.6%. Phillip Streible, chief market strategist for Blue Line Futures in Chicago, commented:

We saw the dollar turn negative. There was a lower acceleration in US stocks. It is possible that this triggered the purchase a little. Gold prices failed to capitalize on fears over US recession risks that rose during the week. Moreover, it was not even perceived as a safe haven at times.

“Fed’s 100bps increase unlikely”

The dollar, which offered some reprieve for gold, briefly turned negative before stalling. But it still stuck to a weekly gain. This made gold more expensive for offshore buyers. Meanwhile, markets see a 75 percent chance for the Fed’s 75 bps rate hike next week and a 25 percent chance for a 100 basis point increase. Tai Wong, a senior trader at Heraeus Precious Metals in New York, comments:

The sudden panic about the potential for an increase of 100 basis points after the ugly CPI report contributed to the massive decline. However, this is highly unlikely. Gold sees physical demand pushing a short market ahead of a long weekend in London on Monday.

“The risks for gold prices are definitely on the downside”

Bank of China International analyst Xiao Fu states that the dollar’s strength continues. He also noted that the higher-than-expected CPI in the US in August confirmed the market view that the Fed would raise interest rates by at least 75 basis points. In this context, the analyst says:

This puts pressure on gold prices. If gold dips below $1,600, some increase in demand for bottoming is possible. But the risks are definitely on the downside.

“These significantly reduce the attractiveness of gold”

In a note, Kinesis Money analyst Rupert Rowling underlines the following for the impact of market developments:

Central banks around the world are raising interest rates significantly. In addition, policies that are likely to continue for a few more months are being adopted. These, in turn, significantly reduce the attractiveness of gold.

“The bearish momentum will likely drive prices down until the FOMC”

Gold prices passed the $2,000 level in March. But it has since dropped more than $400, or about 20%. It also lost more than 3% this week. This marks the worst in two months. Yeap Jun Rong, a market strategist at IG, comments:

Right now, gold seems to be trying to stabilize after heavy selling overnight. It is possible that the bearish momentum will continue to push prices down until the FOMC meeting next week. The Fed is the likely outcome.

“Gold likely to suffer with a hawkish rise”

US retail sales unexpectedly increased in August. Also, US jobless claims fell last week. City Index senior market analyst Matt Simpson comments on the impact of the developments as follows:

A 75 bps boost is all set. So what everyone wants to know is whether the Fed can maintain an aggressive rate of tightening as we enter 2023. Gold is likely to suffer with a hawkish increase.

“Monetary tightening represents a cloud on gold prices”

Gold was under pressure this week. US August CPI came in warmer than expected on Friday. Following this, expectations that the Fed will increase the fed funds rate by at least 75 basis points strengthened. After these developments, gold partially reduced its losses. RBC Capital Markets analyst Christopher Louney comments in a note:

Monetary tightening represents a cloud on gold that is putting pressure on prices. Changing the tide is clearly a big risk. Even when stocks were sold recently, gold really hasn’t performed well gradually. This fact tells us that the perceived safe-haven role is not currently driving gold.

“Bargain hunters have entered the market as gold prices are cheap”

Meanwhile, on Friday, a report from the University of Michigan showed that US consumer sentiment rose to 59.5 in September. Thus, sentiment reached its highest level in five months. It also revealed that inflation expectations have slowed somewhat over the past few months. After that, gold rose. Naeem Aslam, chief market analyst at AvaTrade, notes:

Economic figures confirm that the Fed cannot be an extra hawk as it will completely kill the recovery. There were also bargain hunters who entered the market because the prices were so cheap.

“It is very difficult for gold to rally”

Adrian Ash, BullionVault research director, says he sees “the shadows of the 2013 gold crash.” In this context, the analyst draws attention to the following points:

Nine years ago, gold tested the post-crisis bottom of $1,535 four times before falling. It then led to a two-day 15% drop in spot prices. The precious metal lost 25% in three months. It had its worst annual loss since 1981. The outlook for gold is based on four key differences between the spring of 2013 and the fall of 2022.

The analyst says the technical break in prices comes only in terms of the rising US dollar, and gold’s drop to two-year lows has not yet been reflected in other precious metals. Also, gold’s drop to the $1,680 bottom coincides with increased sales in other asset classes. This allows the demand to be added to gold as a safe harbor. In addition, rising interest rate expectations threaten to worsen the economic slowdown. Finally, the analyst makes the following assessment:

As long as the Fed says tackling inflation remains its #1 concern, it’s very difficult for gold to rally. When Flip arrives, a quick and sharp turnaround is possible. However, it’s unlikely to be rushed for releases like 2013.

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