The gold market surprised this week with a break above $1,830. Analysts say that next week will be crucial if gold is bullish again or getting stuck again in sideways price action. Analysts’ market comments and forecasts cryptocoin.com compiled for our readers.
“When selling stocks and crypto space, the money has to go somewhere”
In an unexpected move, the precious metal hit two-month highs this week and investors flocked to the safe haven as volatility rattled equity markets ahead of next week’s Federal Reserve meeting. Frank Cholly, senior market strategist at RJO Futures, commented:
When selling stocks and crypto space, the money has to go somewhere. Gold rose this week amid all the weakness in the equity market. Bitcoin has also dropped quite a bit. We have a base for gold. The question is, will we go down and stay flat or will we climb to $1,900? The precious metal needs another close above $1,830. It is crucial to maintain this level before a move above $1,850.
Everett Millman: Real demand for gold still strong
Gainesville Coins precious metals specialist, Everett Millman, says that the movement in gold has surprised some analysts because the movement is so fast:
The gold market has been flat for several months. It was somewhat surprising to see a breakout in both directions. Going into this week, the weather in the gold market was very negative. Many large banks predicted that the price of gold would fall. This played out in favor of gold as negative sentiment prepared us to take another turn.
In addition, stating that rising oil prices and strong individual demand contributed to the rise in gold prices, Everett Millman explains the issue as follows:
Higher oil makes it more expensive to extract gold from the ground. We can see the constraints on the supply of mined gold. Also, real demand for gold is still strong. The US Mint saw 12-year highs in gold sales, while Perth Mint saw 10-year highs. Average retail investors are still buying gold at the fastest pace in a decade.
According to Frank Cholly, the strength of gold depends on these next week.
All eyes are on how markets will react to the Federal Reserve monetary policy meeting scheduled for Wednesday. Frank Cholly predicts he will see a steeper sell-off in US stocks as the central bank maintains the same level of hawking:
We can make a more meaningful correction in equities. We’ll have more evidence of the Fed’s direction. And the stock market likes to throw tantrums to get the Fed’s attention. Gold’s strength next week will depend on stocks falling and money being reallocated to precious metals. If gold rises above $1,850, it will open the door for $1,870-80 and eventually $1,900.
FOMC will be in focus for gold investors
The Fed meeting, which will be followed by the press conference of Central Bank Governor Jerome Powell, will be the biggest macro event of the next week. Analysts expect more hawkish clues about the first rate hike in March and more clarity on potential balance sheet flow. Markets are currently pricing in four rate hikes in 2022. Paul Ashworth, North America chief economist at Capital Economics, comments on the possible outcomes:
With the Omicron wave past its peak at the national level, there is little to hold back the Fed. Especially if news of further acceleration in wage growth comes next week. A vote against immediate interest rate hikes by one of the hawkish regional Fed Chairs, who will vote as part of the annual rotation, could also fuel the recent sell-off in the bond market.
ING’s chief international economist James Knightley, announcing that the Fed’s contraction process has been completed as soon as possible, states that there is a risk of further hawking:
The Federal Reserve meeting will be the main focus and we suspect we may see the announcement of the end of QE (quantitative easing) asset purchases put forward from the currently signaled mid-March endpoint. In an environment where the economy has completely regained the production lost from the pandemic, unemployment has fallen below 4% again and inflation is close to the peak of 40 years, the rhetoric of continuing to revive the economy seems strange.
Other key data to consider will be Tuesday’s CB consumer confidence, Thursday’s Q4 GDP numbers, jobless claims and durable goods orders, as well as Friday’s PCE price index. Paul Ashworth
We expect to learn that fourth-quarter GDP growth was a somewhat disappointing 4.0% year-on-year. However, markets may focus more on the Employment Cost Index (ECI). Special fee growth reached 4.6% YoY in the third quarter and could rise as high as 5% in the fourth quarter, making the March rate hike almost certain.
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