Gold prices fluctuated in a narrow range on Thursday as market participants took a cautious stance ahead of key US inflation data that could affect the extent of the Fed’s next rate hike. Analysts interpret the market and share their forecasts.
“In the short term, gold will be traded in this range”
Spot gold was trading at $1,677, up 0.23% at the time of writing. U.S. gold futures were up 0.46% at $1,685. Gold is traditionally regarded as an inflation hedge. However, interest rate hikes to combat rising prices reduce bullion’s appeal as it does not earn interest. Edward Meir, analyst at ED&F Man Capital Markets, comments:
Inflation will stay very sticky for a while. Hence, it will keep the gold under pressure. In the short term, the trading range of gold prices will be between $1,620 and $1,740.
“Gold still looks weak on the charts”
US Consumer Price Index data coming today. Markets forecast a warm 8.1% yoy in September. This strengthens expectations for another big rate hike from the Fed. ANZ wrote in a note that stronger data would be negative for gold. The minutes of the Fed’s last policy meeting on Wednesday showed that policymakers decided they needed to adopt a more restrictive policy stance, and then hold it for a while to keep inflation down.
Edward Meir says gold still looks weak on the charts. He also notes that any rally in prices will be short-term, as the Fed is still very hawkish and worried about inflation.
“The market is looking for any dovecote sign”
With this cryptocoin.comAs you follow in the FOMC minutes, several participants in the discussion said it would be important to “adjust” the pace of further policy tightening to reduce the risk of a significant negative impact on the economic outlook. Tai Wong, a senior trader at Heraeus Precious Metals in New York, comments:
The market is looking for any dovish sign, the word “adjust”. Therefore, the decline of the US dollar and the popularity of gold are increasing. However, the minutes still need to be read as a hawk.
“Yellow metal poised to benefit from return in dollar and yields”
The dollar weakened, making gold cheaper for other currency holders. Indicator US 10-year Treasury yields also eased. Ole Hansen, head of commodity strategy at Saxo Bank, comments on the latest developments as follows:
The gold and silver outlook is poised to benefit from the eventual return in dollars and yields. As such, it will continue to focus on inflation and economic data to support a shift in the hawkish stance the Fed has pointed to and for any signs of weakness.
“There is still reason to be long gold”
Ole Hansen talks about volatility in Treasury yields and the dollar. He says these have taken gold and other commodities on a “bullet train ride” in recent weeks.
Commodity markets continue to be heavily inspired by price action in financial markets. However, there is still reason to be long gold. A Fed policy mistake risks triggering a reversal in stocks, bonds and the dollar. Therefore, we see no reason to change our long-term bullish view of gold.
“PPI indicates that CPI will remain high”
Ryan Belanger, founder and director of wealth management firm Claro Advisors, says Wednesday’s stronger-than-expected producer prices data confirm the aggressive pace of the Fed’s rate hikes, even as these measures ultimately hurt the overall economy. In this context, the analyst makes the following statement:
The rise in producer prices in September indicates that Thursday’s Consumer Price Index will also remain high, as the prices consumers will pay for goods in the future are derived from the prices producers pay today.
“Bond yields continue to affect gold”
Higher interest rates boost the dollar and blunt demand for dollar-denominated commodities. Increasing returns raise the opportunity cost of holding non-returning assets. So there is a headwind for gold. Jeff Wright, chief investment officer at Wolfpack Capital, says bond yields are affecting gold. He also notes that any message about interest rates and the Fed’s attempt to rein in inflation has had an impact on the yellow metal. The analyst continues his assessment as follows:
Higher-than-expected PPI data due to services rather than durable goods, CPI to be released on Thursday Not that it doesn’t bode well for you. I do not foresee that the Fed will raise interest rates before the November meeting. However, it is possible to accelerate QT measures to push interest rates higher in the interim.
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