Gold prices fell to their lowest level since April 2020 on Friday as the relentless rally in US dollar and US Treasury yields and the Federal Reserve took a more aggressive stance to contain rising inflation. Analysts interpret the market and share their gold forecasts.
“An unrelenting dollar strength will leave gold defenseless”
Spot gold fell 1.64% to $1,644 on Friday. U.S. gold futures were last traded at $1,655.60, down 1.5%. Bullion tumbled for a second week, down nearly 1.8%. Edward Moya, senior analyst at OANDA, comments:
Here we see a relentless dollar power. This will leave gold vulnerable in the short term. The economy is clearly heading towards recession. Hard landing risks rose. This situation continues to increase flows to the dollar, which is bad news for gold.
“Precious metals will remain under pressure”
cryptocoin.comAs you follow, the dollar touched the highest level in 20 years. This, in turn, reduced the demand for dollar-priced bullion. Meanwhile, benchmark 10-year rates jumped to the highest level since April 2010. “Therefore, gold prices are likely to be broadly sideways traded for the remainder of the year,” Fitch Solutions says in a note. Ole Hansen, head of commodity strategy at Saxo Bank, underlines the following in a note:
The renewed strength of the dollar is pushing gold down. Other semi-investment metals such as gold, silver and platinum will remain under pressure until the market reaches its highest falconry.
“Gold prices move below $1,600”
Gold is considered a safe investment in times of political and financial uncertainty. Rising interest rates reduce the attractiveness of the yellow metal as it does not bring interest. ANZ commodity strategist Soni Kumari comments on the current situation:
There were some safe harbor purchases as the war in Ukraine escalated. Despite this, tight monetary policies provide a solid foundation for both real interest rates and the dollar. Therefore, the relentless rise in interest rates continues to be a headwind for gold. CPI figures are likely to remain high. However, the Fed is determined to reduce inflation. We expect gold prices to drop below $1,620 and then below $1,600.
“The market digested the interest rate hike, we do not foresee a big decrease in gold”
Ajay Kedia, director of Mumbai Kedia Commodities, expects prices to remain volatile in the near term as the market has already digested the 75bps rate hike. Therefore, it does not foresee a large decrease in prices. Kedia draws attention to the following levels:
We see $1,650 as support and $1,720 as resistance. The expectation of a further increase in the interest rate limits the upward movements of gold.
“In this case, gold prices will skyrocket to surprising levels”
The actions of major central banks have raised concerns of a global recession. Gold prices are down nearly 20% from the $2,000 they saw in March. Clifford Bennett, chief economist at ACY Securities, comments:
The dominant trend in the minds of global investors is to realize that the European and US economies are currently in serious trouble. If the situation starts to look more like an economic collapse, gold will skyrocket to staggering levels.
Gold in an environment of geopolitical and economic uncertainty
Gold failed to take advantage of its haven on Friday during times of geopolitical and economic uncertainty. Rupert Rowling, market analyst at Kinesis Money, highlights the following in a note:
In the current macroeconomic environment, where interest rates around the world are likely to rise and possibly continue for a few more months, the pressure gold has come under means it’s hard to see how it can profit, given the question of how far the yellow metal will fall.
“This is a long-term positive sign for gold prices”
Meanwhile, some global central banks other than the Fed also raised interest rates this week, underscoring investors’ concerns about the economic outlook. According to Insignia Consultants research director Chintan Karnani, gold’s failure to trade above $1,700 after the Fed meeting is due to trading with a falling bias.
Still, Karnani points out that gold is stable in every currency except the US dollar. He notes that this is a long-term positive sign for the precious metal. Along those lines, he says, if gold collapses, there will be ‘big gold demand’ between the $1,576 and $1,600 region. Karnani reminds us that the Indian festival season will start from Monday and continue until the end of October. So, he says, “The low gold price cheers up jewelers as demand is expected to be higher.”
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