Gold May Break These Levels Next Week!

Gold is trading near 2.5-year lows. Behind this, the US Federal Reserve’s hawkish stance has boosted US dollar and US Treasury yields. According to analysts, this macro environment is likely to drive more people away from gold. Thus, it is likely to create a great buying opportunity. Here are the events in the market and the expectations for the upcoming process…

Interest rate hike affected gold prices

The precious metal is down another 1.7 percent this week. The volatility and dramatic currency movements in the markets did not pass without affecting gold. cryptocoin.com As we have also reported, the FED increased interest rates by 75 basis points for the third time in a row. It increased the funds rate to 4.4 percent at the end of 2022 and to 4.6 percent in 2023. For markets, this could translate into a 75bps increase in November and an additional 50bps increase in December. Bart Melek, Head of Global Commodity Markets Strategy at TD Securities, uses the following statements:

We have seen significant increases in market forecasts for interest rates. That’s a pretty big difference from a month ago and is in line with the Fed being more aggressive. Real rates are rising – negative for gold. The high cost of transportation and high opportunity cost will likely drive capital away.

Edward Moya: It all depends on us seeing the economy weaken

Also, this kind of hawkish (hard monetary policy) means that the top of the US dollar rally is still far away. This is bad news for gold. OANDA senior market analyst Edward Moya says the rally has not peaked despite the dollar’s rise. The analyst uses the following statements:

This dollar rally is not peaking. The current market environment will likely continue to be uncomfortable. The Fed’s rate hike expectations are widely on the agenda. We won’t see any easing until we see inflation come down. The problem is, we don’t understand that the economy is weakening rapidly. When we get it, that’s when you’ll see a peak in the dollar. For gold, it’s all about when we’ll see it.

The Dow Jones hit its lowest level of the year on Friday. Therefore, gold is unlikely to see a strong rally in the short term, with more volatility in the coming period. “We will not be in a rush to buy gold yet,” Moya said. There are also low volatility instruments that currently give you some returns. That narrative has been drifting away from gold lately,” he said.

$1,600 risk for gold

According to experts, eventually, gold will become a safe haven again as appetite for stocks wanes. But before that, the economy and inflation need to slow down. “As we start to see inflation move to a more moderate level, the Fed could quickly turn around,” says Melek. Still, he doesn’t think this transformation will happen anytime soon. The big risk for the precious metal to fall below $1,600 an ounce. Moya uses the following expressions:

If we break $1,600, we start to see buyers emerging. The next level will be $1,540. Gold will benefit from safe-haven flows abroad.

Melek also sees it likely for gold to drop below $1,600 an ounce. “There will be higher volatility going forward. As volatility increases, margin calls increase. Long positions cannot be extended. We will not see a large position entry. “It’s a bad environment for gold,” he said. Gold follows September employment and inflation data. Melek said, “The market is still looking at the very strict working conditions in the USA. It implies that wage pressures will continue to be an issue.” Market calls expect the US economy to create 300,000 jobs in September. In addition, the issue of the unemployment rate falling to 3.5 percent, which is close to the lowest levels in 50 years, is on the agenda.

Appropriate level to get gold

At these levels, gold is a great entry point for buyers. Melek underlines that this situation makes physical gold cheaper. He states that as inflation is brought under control, the Fed’s movements may quickly reverse in 2023. He expects gold to do well in the long run. However, for now, resistance lies at $1,678-80. Support is around $1,580 per ounce.

According to another analyst, Christopher Lewis, “the sizes of the candlesticks” indicate that we will fall further in the long run. He says the $1,500 level in the precious metal is a “good starting target” based on the Fed’s moves. Stating that he has seen selling pressure in the near term and is in a downtrend, the analyst points to a level of $ 1,200 in the worst scenario.

Next week’s data

• Tuesday: Fed Chairman Powell to speak, US product orders data, CB consumer confidence, new home sales
• Wednesday: US pending home sales
• Thursday: US jobless claims, GDP Q2 data
• Friday: US personal income data and PCE price index, Michigan consumer sentiment

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