Gold is now in a much better position to receive Wednesday’s announcement from Federal Reserve Chairman Jerome Powell, according to market analyst Anna Golubova. But can it lift a more hawkish message from the central bank? cryptocoin.com We have compiled the evaluations of analysts seeking answers to this question for you.
OECD raises inflation outlook for G7 countries for next year
Analyst Anna Golubova says gold is discouraging double-digit gains after falling $50 last week, as Evergrande concerns rattled markets earlier this week. Alongside the increasing volatility in global stock markets, the OECD raised its inflation outlook for nearly all G7 countries for the remainder of this year and next year. The OECD report includes the following assessment:
Near-term inflation risks are on the upside, especially if consumers’ pent-up demand is stronger than expected or supply shortages take a long time to overcome. Coherent monetary policy should be maintained, but clear guidance is needed on the horizon and scope within which any inflation overshoot will be tolerated.
The OECD expects US inflation to stay above 3% over the next year. The report highlights the following points regarding inflation:
Inflation is expected to settle above the average rates seen before the pandemic. This is welcome after years of below-target inflation results, but it also points to potential risks.
“US dollar, coupled with Fed’s expectations, keeps gold price in check“
For the Fed, this means it needs to be extra cautious about when and how much is best to cut back on its $120 billion monthly asset purchases. Analyst Anna Golubova notes that the precious metal still faces significant headwinds with the Fed’s Wednesday announcement, as any hint of a hawkish tapering timeline will send prices down once again. Commerzbank analyst Daniel Briesemann comments:
Combined with the expectations of the US Fed, which will start its two-day meeting today, the US dollar seems to keep the gold price under control.
BBH Global Currency Strategy assesses that China’s Evergrande situation has no impact on the Fed’s negotiations or decisions. BBH chairman Win Thin said:
No change in policy is expected. However, we expect a hawkish stance as the official statement and minutes should continue to lay the groundwork for tapering this year.
Win Thin adds that the Fed is expected to officially announce tapering at its November meeting, with the expected start in December.
TDS strategists think Fed’s announcement could be devastating for gold
The US central bank will also release a set of elevated economic projections, including a dot chart. Most analysts expect the tapering to be mentioned, but anticipate that the announcement will come soon after an official announcement. ABN AMRO senior economist Bill Diviney explains his expectations from the meeting:
As a common view, we do not expect an official change to be announced at this meeting. However, we are likely to see some changes in the policy statement that an announcement regarding tapering is imminent. Specifically, the Fed could change the portion of its July policy statement that pointed to the pace of asset purchases to move towards its targets, to “the economy has made further progress towards these targets, and this likely warrants a reduction in the pace of asset purchases at the upcoming meetings.”
TD Securities commodity strategists think the Fed’s announcement could be devastating for the precious metal, especially if the updated dot chart has a hawkish trend:
Recall that for the median to go higher, only two officials need to mark the 2022 points. In this context, the stagflation narrative captures the common sense of the market as participants look at a period of high inflation and slowing growth. However, this has not yet turned into an additional interest in gold.
OANDA senior market analyst Edward Moya notes that investors started bidding for a hawkish statement Wednesday, which could hurt gold’s recovery. “Gold’s recovery should start to lose momentum soon as prices face strong resistance at the $1,800 level,” says Edward Moya.
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