Investors are looking for more clues to the pace of US monetary tightening from Fed minutes and inflation data due this week. In this environment, gold prices are trading in a narrow range on Wednesday. Analysts interpret the market and share their forecasts.
“The more aggressive the Fed, the less attractive gold looks”
Spot gold is hovering near one-week lows it touched on Tuesday. At the time of writing, it is trading at $1,662.98. U.S. gold futures fell 0.9% to $1,671. Investors await the release of the minutes of the Fed’s September meeting. The focus is also on Thursday’s inflation data, which will shed some light on the Fed’s rate hike trajectory. DailyFX currency strategist Ilya Spivak comments:
Gold prices are consolidating. When the Fed minutes and CPI report are released, there is a pause in the market before the risks of major events. The more aggressive the Fed, the less attractive gold looks. The market expects the minutes to confirm the Fed’s appetite for tightening.
“Physical demand will continue to increase, but will remain limited”
Gold is accepted as an inflation hedge. However, rising interest rates reduce the attractiveness of non-yielding bullion. Loretta Mester, Chairman of the Federal Reserve Bank of Cleveland, said that despite a massive rate hike this year, the central bank has yet to contain rising inflation and will need to advance tight monetary policy.
Meanwhile, the International Monetary Fund (IMF) has warned that colliding pressures from inflation, war-induced energy and food crises and sharply high interest rates are pushing the world to the brink of recession.
On the physical front, Standard Chartered noted in a note that demand will continue to rise with festival-wedding purchases starting in India. But he said he doesn’t expect it to be as strong as in the fourth quarter of 2021.
“Gold withstood the rise in real interest rates”
However, the market is still waiting to see how inflation data and Fed minutes play out on the way to the next Fed meeting. That’s why Ryan McKay, commodity strategist at TD Securities comments:
Most of the daily price action is pretty loud at this point. Gold has held up quite strongly against the rise in real interest rates. So I think there is some catch to the downside there.
“It is difficult to create a bullish situation for gold”
OANDA senior market analyst Craig Erlam says he wasn’t surprised to see the rally last week come to naught. Erlam wonders how low the precious metal will fall in the near term as markets prepare for US inflation data and the next Fed rate hike in November. After his comment, the analyst points to the following levels:
Looking ahead, peak inflation may not yet be here. Considering that rate hikes could continue until such a scenario, it is difficult to create a bullish situation for gold. Key levels on the downside are $1,620 followed by $1,600. If it manages to recover, $1,685-1,690 looks interesting as it has been a level that it has been returning to repeatedly in recent months.
Scenarios according to the US CPI report
Where gold ends this week will likely be influenced by Thursday’s US inflation data, according to Lukman Otunuga, head of market analysis at FXTM. From this point of view, the analyst draws attention to the following levels:
A fiery CPI report will almost certainly strengthen bets on aggressive rate hikes. As a result, the dollar and Treasury will increase interest rates. Therefore, gold is in danger. Such a development is likely to drag the precious metal to $1,655, $1,615 and $1,600. A missed inflation report will likely provide room for gold bulls to contend. This is likely to open the way back to the psychological $1,700 level.
“The yellow metal sudden change does not go unnoticed”
Société Générale’s strategists say macro drivers encourage large closing. That’s why he notes that in the week ending October 4, gold rose 6.0%. In this context, he makes the following statement:
Gold suffered strong shorts of $4.7 billion, the third-largest figure since data began collecting in 2006. This reversed a seven-week trend that started on August 10, where the total bearish flow of gold reached $14.4 billion.
Meanwhile, the DXY index fell 3.5%, while the US 10y real yield lost 22 basis points. But the decline in the latter was not linear. Strategists continue their assessments as follows:
This has made the precious metal cheaper for foreign investors and more attractive than income-generating assets such as the Treasury. Therefore, it increased demand and prices. The geopolitical concerns surrounding the war in Ukraine and the devastating impact of the high interest rate environment on the economies may have provided additional support for gold.
“Gold will remain on the defensive”
cryptocoin.comAs you follow from , gold is going down again. Strategists at Commerzbank expect the yellow metal to stay on offer as higher yields push the dollar higher. Strategists explain their views as follows:
The US dollar is clearly gaining strength again. In addition, the Fed foresees even more significant rate hikes. That’s why bond yields go up. These triggered renewed price weakness. Using market-based inflation expectations, the real US interest rate is at its highest level since August 2009. This makes gold less attractive as an interest-free investment. Gold will likely remain on the defensive as long as the US dollar’s headwind and rising real returns continue.
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