Dollar and US Treasury yields slumped as markets expect the Federal Reserve to lower its pace of monetary tightening. With the effect of this development, gold rallied above the key $1,700 level with a sharp move on Tuesday. Yellow metal continues to hold its gains. Analysts interpret the market and share their forecasts.
“Bad news, now good news for gold”
Spot gold touched its highest level since Sept. 13 at $1,710.49 at the start of the session. At press time, it was trading at $1,705.40, up 0.4%. Meanwhile, U.S. gold futures were up 0.8% to $1,714.90.
Gold started the quarter on a strong note. It recorded its biggest daily percentage gain since March on Monday, as a slowdown in U.S. manufacturing activity raised hopes the Fed might be less aggressive going forward. Ole Hansen, head of commodity strategy at Saxo Bank, comments:
Bad news, now good news for gold. Basically, if we get worse economic data from the US, the market will believe that we’re approaching a peak in interest rates. The yellow metal hasn’t gotten out of control yet. However, we have at least seen a very strong recovery. The first movement was achieved with a short closing.
“Investors expect a less aggressive Fed”
Meanwhile, US 10-year Treasury yields fell to their lowest level in nearly two weeks. cryptocoin.comAs you follow, the dollar index (DXY) widened its decline. This made gold cheaper for other currency holders. In a note, ActivTrades senior analyst Ricardo Evangelista highlights:
Demand for more treasury paper led to lower returns. As a result, the dollar weakened. Investors are expecting a less aggressive Fed due to these effects. So they started pricing it out.
“Recession concerns increased interest in gold again”
The Fed has aggressively raised interest rates since March. In addition, Fed officials stated that more rate hikes are needed to rein in inflation. The focus is now shifting to US nonfarm payroll data, due Friday. These data will provide more clarity to the tightening of Fed policy.
SPDR Gold Trust Holdings, the world’s largest gold-backed ETF, saw its biggest one-day entry since June on Monday. Sugandha Sachdeva, vice president of commodity and currency research at Religare Broking, says weakening DXY and recession concerns in the US and Europe have again fueled interest in gold. It also notes a resurgence of renewed inflows into gold exchange-traded funds (ETFs).
“Of the two metals, silver was the most impressive”
Stephen Innes, managing partner at SPI Asset Management, expects gold to stabilize at anywhere between $1,685 and $1,705 ahead of business data.
Precious metals strategists attribute gains in gold and silver on Monday to declines in Treasury yields. City Index and FOREX market analyst Fawad Razaqzada comments:
Of the two metals, silver was the most impressive. Yields fell after the BoE’s interim bond-buying program and disappointing US ISM manufacturing PMI data.
“Basic ground for gold is less bearish”
The Procurement Management Institute’s manufacturing survey fell from 52.8% in August to a 28-month low of 50.9% in September. Kinesis Money analyst Rupert Rowling notes that silver is rising due to expectations that it will see “great demand” as the clean energy transition continues. Meanwhile, analysts at Sevens Report Research noted in a research note Monday:
Treasury yields and the dollar approached their peak. Therefore, the underlying ground for gold is less bearish. However, unless we see a peak in yields and currency, investors should expect the precious metal to drop to new lows.
“Downside risks continue for gold”
In a weekly update, ICICI Bank analysts include the following assessments:
We expect major central banks to continue raising interest rates aggressively to combat rising inflation. Therefore, downside risks remain for gold.
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