The Federal Reserve has reached the end of its tightening cycle. Thus, the vice that monetary policy exerted on gold for most of 2023 began to weaken. This gives the market room to move.
““Gold is doing what it does best.”
cryptokoin.comAs you follow from , gold hit its lowest level in the last seven months last Friday. However, heading into this weekend it posted its best weekly gain since mid-March. Gold, traded at $1,941.50 per ounce in December, increased by over $90 compared to last week’s closing price. Thus, it is up more than 6% compared to last week’s lows.
Gold is making significant gains towards the weekend due to increased safe haven demand as Israel intensifies its war with Hamas. With increasing chaos in the Middle East and Russia’s ongoing war with Ukraine, investors are hedged for a weekend where anything can happen, analysts say. World Gold Council North America market strategist Joseph Cavatoni comments on the developments as follows:
What’s happening is terrible! However, in moments like these, when there is so much uncertainty, investors will flock to gold. Gold is doing what it does best.
This situation creates a fertile ground for gold to rise
Adding to the tensions with Russia, the United States announced Friday it was tightening sanctions on Russian crude oil exports. As a result, oil prices approached $90. During this period, it increased by approximately 4% during the day. Some analysts say that if the rise in oil prices continues, gold will contribute to the safe-haven bid as a hedge against persistent inflation.
Christopher Vecchio, head of futures and forex at Tastylive.com, expects inflation to be highly volatile through the end of the year. Vecchio says that won’t be enough to force the Fed to raise interest rates again. In this context, the analyst makes the following statement:
The Fed is done. We heard five Fed members say there is no need for another rate hike. Interest rates have become a secondary factor for gold as investors focus on geopolitical uncertainty. This creates fertile ground for gold to rise.
Will the recovery of gold prices continue?
Edward Moya, senior market analyst at OANDA, also points to safe haven demand. In this regard, the analyst predicts that gold prices will increase in the near term. In one of his notes, Moya underlines the following points:
The demand for safe havens becomes more evident given that monetary policy is sufficiently restrictive that rising energy prices could easily disrupt the global outlook. High inflation and a resilient economy could point to more Fed rate hikes. But it looks like the economy is finally starting to slow down. If interest rates peak, gold’s recovery will continue.
Despite the recent rise, it is better to be cautious!
Gold made significant gains heading into the weekend. Additionally, market sentiment is solidly bullish. Despite this, some analysts warn investors to be careful and not follow the market. Ole Hansen, head of commodity strategy at Saxo Bank, says although gold remains well supported by growing safe-haven demand, the price faces tough resistance at $1,950.
Next week’s data and events agenda
The most important report of next week will be September retail sales figures. Economists say weak consumption will further focus slowing economic growth in the United States. They say this will make it more difficult for the central bank to raise interest rates next month. Another important development of next week will be the speech of Federal Reserve Chairman Jerome Powell. Powell will give a speech at the Economic Club of New York on Thursday. Gold investors will follow these developments in the week when there is no critical data.
- Monday: Empire State poll.
- Tuesday: US retail sales.
- Wednesday: US building permits and housing starts.
- Thursday: Philly Fed Survey. Weekly unemployment claims. US existing home sales. Fed Chairman Powell will speak at the Economic Club of New York.
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