The gold market rose as prices saw their best week in three years amid the negative effects of the banking sector. Analysts aren’t ruling out a $2,000 test for gold prices next week as markets move towards the Federal Reserve monetary policy meeting scheduled for Wednesday.
This is a good thing for gold prices!
cryptocoin.comAs you follow, the precious metal gained more than $110 last week, from $1,867 to over $1,980. Thus, it had its best performance since March 2020. The Federal Reserve monetary policy meeting, the biggest event for which markets have been preparing all week, is now on the periphery. According to analysts, the gold market is in a winning position after wild fluctuations in rate hike expectations this week. Bart Melek, global head of commodity strategy at TD Securities, comments:
Markets conclude that the Fed will raise another 25 basis points, and then probably sit on it for a while and wait to see what happens. From a gold perspective, given the disruptions in the banking system and the willingness of the U.S. Treasury to help, we can adapt that allows inflation to stay at a higher level longer. That’s good for gold.
Bart Melek adds that the consensus in the gold market is that the Fed should relax before inflation is brought under control. And that’s a big change in perspective from just a few weeks ago.
The Fed will definitely break something!
Markets are pricing in a 25bps increase for Wednesday, but investors are more focused on the potential recession and subsequent rate cuts. Gainesville Coins precious metals expert Everett Millman says another 25 basis point gain can be interpreted as nothing more than a move by the Fed to maintain credibility.
“They don’t want to seem like they’re giving up on higher rates so quickly,” Millman says. He also adds that it is unlikely that the Fed will continue to raise interest rates after Wednesday’s decision. In this context, he comments, “Something will definitely break if the Fed keeps his foot on the pedal.”
What has the ECB told us?
Despite banking sector concerns and market turmoil, the European Central Bank (ECB) increased interest rates by 50 basis points this week and maintained its hawkish stance. Frank Cholly, senior market strategist at RJO Futures, says this gives markets confidence that the Fed will continue with its current plans. Based on this, he makes the following statement:
The market got its answer yesterday, with the ECB increasing 50 basis points. Lagarde stressed the point that inflation has been too high for too long. I don’t think 2% inflation is realistic. Now they know they’re going to break things along the way.
Will gold prices test $2,000?
Analysts say gold is very likely to test $2,000 next week before making a huge profit, fearing the risk of banking contagion spreading further. Millman explains his predictions on this issue as follows:
I wouldn’t be surprised if gold retests last year’s highs above $2,000. We can’t see the future, but the banking situation is getting more and more worrying by the day. The Fed is stuck between a rock and a hard place between trying to bail out vulnerable banks and tackling inflation. These two goals seem to have opposite purposes. It’s hard to raise rates without putting more stress on the banking system.
Bart Melek points out that there is no reason why gold should not test $2,000 next week. “A good part of this upward move is short-range. But the longing may have started, too,” he says.
Frank Cholly states that fear of missing out (FOMO) drives prices up. Therefore, “This is the original fear of missing something. When gold gets cheaper, people tend to stay away from it. But when prices go up, people buy more,” he comments. Cholly shares these predictions:
This is the opposite of what happens with other commodities, which see demand destruction when a certain price level is reached. I thought gold would hit $2,000 sometime this year. Now, I’m convinced it will go over $2,000 and faster than I thought as people start chasing the market.
Weekly gold prices technical analysis
Technical analyst Christopher Lewis illustrates the technical outlook for gold this week as follows. Gold markets were extraordinarily strong throughout the week as we saw many risk appetites eroded. Although it seems like we are trying to reach the $2,000 level at this point, it will be very difficult for us to reach that level. However, I think we may experience a short-term pullback. But it’s clear that the market has decided it wants to go higher, so you need to look below through this prism.
Pay close attention to the Federal Reserve next week, as there will be a lot of noise around the decision and of course the press conference that followed. After all, the market will have to try to determine what the Fed is prepared to do. Therefore, many expectations regarding the US dollar will be shaped according to this assumption. Obviously, the US dollar and gold can rise at the same time! But right now I think it will be more or less a situation where people are trying to protect their wealth. However, we are approaching a major resistance barrier.
If we pull back from here, I would expect to see a lot of support near the $1,900 level. The $1,900 level is a big, round, psychologically significant figure that we’ve tried to make a move from there before. Ultimately, this is a market that has been on autopilot for a while, and I think we can cool off a bit now. However, if we break above the $2,000 level, this thing could really start to rise.
Next week’s data
- Tuesday: US current home sales
- Wednesday: Fed decision
- Thursday: US jobless claims, new home sales
- Friday: US durable goods orders
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