Gold prices fell on Friday as the dollar appreciated. However, hopes of slower rate hikes by the US Federal Reserve helped gold post its fifth consecutive weekly gain. Analysts interpret the market and share their forecasts.
“Gold prices may decline next week”
Spot gold fell 0.34% to $1,925.66 per head. However, it managed to hit the highest level since April 22. Meanwhile, prices are up 0.4% so far this week. US gold futures, on the other hand, closed the week at $1,928.2, up 0.2%. Daniel Ghali, commodity strategist at TD Securities comments:
The US dollar is finding some kind of stability, and in turn, we may see gold prices decline next week.
“This could limit the extreme drop in yellow metal”
cryptocoin.comAs you follow in , the dollar was stable against its rivals and made gold more expensive for holders of other currencies. However, recently weak US economic data and hawkish comments from Fed policymakers have raised concerns about a global slowdown. This prompted investors to seek shelter in the safe-haven metal.
Comments from Fed officials indicate that the final rate is over 5%. However, traders still believe rates will peak at 4.9% by June. Accordingly, it sees a 93.7% chance for a 25 bps rate increase in February. While gold is accumulated by various central banks and institutions, gold ETFs held by individuals are decreasing. Gabelli Gold Fund portfolio manager Caesar Bryan says the return of ETF purchases will limit the extreme decline in yellow metal.
“From this point of view, next week can be very good”
Gold prices almost always rose in dollar terms in January. Adrian Ash, director of research at Bullionvault, comments:
This year, however, the hot coin entered Shanghai Futures and Options alongside COTEX. This suggests prices are betting on continued strong household purchases expected in China for the Lunar New Year Holidays to talk over heavy central bank demand. Next week may sound very good when China’s spring festival closes both Shanghai’s gold and futures exchanges. This will remove leveraged positions from the market as well as a large physical demand.
“Gold prices have really caught a fair headwind, but…”
The fact that gold has been able to make such huge gains, trading close to its highest level since April, remains staggering, despite another rate hike when it next meets, according to Kinesis Money market analyst Rupert Rowling. The analyst underlines the following points in his latest market note:
The gold has really caught a fair wind and is sailing higher above it. However, there remains persistent concern that gold has climbed too far before the Fed and other central banks actually halted rate hikes, leaving the precious metal highly vulnerable to a sudden price drop if interest rates do not stop their rise as predicted.
“This could be the beginning of the next breakout”
Meanwhile, on Jan. 13, gold futures posted a ‘golden cross’ formed as the short-term moving price average rose above the long-term moving average. According to Jeb Handwerger, editor of the Gold Stock Trades newsletter service, this could mark the beginning of the next breakout to ‘new highs’ past $2,000. Still, investors are starting to discount a recession and a Fed pivot after the fastest rate hike cycle ever, Jeb Handwerger says. In this context, Handwerger makes the following statement:
Investors are flocking to real assets like precious metals and secondary minors as a safe haven from the falling dollar. The Fed has already turned 0.5 percentage points from 0.75 percentage points gains. It is also expected to gradually slide to 0.25.
The road to $2,000 for gold prices
Technical analyst Phillip Streible shares his analysis of the latest gold situation. Metals markets have been mixed this week with gold, the most sensitive metal to come out of the basket, and continued to rise without showing any signs of consolidation. Last Wednesday’s data dump sent 30-year Bond futures to the highest level since September. Headwinds came from a dovish Bank of Japan and slowing US inflation data.
Still, there is an undeniable safe-haven demand for bonds and gold amid data showing the deteriorating US economy. We are no longer in 2022, inflation is not soaring, and the Treasury market is not predicting endless Fed rate hikes. Have we moved to the dark side of the economic cycle where, without the Fed axis, slowing economic growth will bring stocks down? We don’t know the answer yet, but bonds and gold are starting to say it.
Looking at the chart above, it is important to see that gold has accelerated against silver since mid-December. This is because of the peak in Treasury yields and the softening of industrial demand.
The ‘soft landing’ narrative has led investors to purchase any weakness in the largely short-term basket of US stocks and cryptocurrencies. When economic cracks appear, investors will flee from these assets. They will also turn a larger flow of money into gold. This will push gold towards $2,000.
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