Gold prices rose on Friday as the dollar eased. However, the non-yielding yellow metal headed for the weekly decline as the US Federal Reserve forecast higher interest rates for a longer period. Analysts interpret the market and share their forecasts.
“Gold prices continue to remain under pressure”
Clifford Bennett, chief economist at ACY Securities, says gold is trying to stabilize. However, he notes that it continues to be pressured by the volatility surrounding inflation and the outlook for Fed rates.
cryptocoin.comAs you follow, the Fed increased interest rates by 50 basis points on Wednesday, as expected. However, Chairman Jerome Powell said the Fed will raise further next year even as the economy slides into recession. Gold prices have since dropped about 1% for the week since then. In this move, it has retraced sharply from the peak of about 5.5 months.
Central banks in Europe followed the Fed in slowing the pace of rate hikes. But they sent a similarly harsh message that financial conditions will continue to tighten even as economic performance worsens.
“It will be very difficult for speculators to shift their capital to gold!”
TD Securities commodity strategist Daniel Ghali comments on the latest developments as follows:
The Fed maintains its hawkish message for now, despite the declining growth outlook. On the other hand, it will be very difficult for speculators to shift their capital to gold without a break on the horizon.
Kitco Metals senior analyst Jim Wyckoff says gold and silver prices have fallen sharply after the recent gains amid pressure to take profits from short-term futures traders.
“Gold has performed well in past recessions”
ANZ Bank strategists say gold prices tend to come under pressure ahead of a recession. However, he later notes that it outperformed other markets (such as equities). In this context, strategists make the following statement:
We expect the US to enter recession in 2023, with GDP falling to 0.2% YoY and contracting by 0.8% QoQ in the third quarter. The economic growth outlook is compounded by weakness in Europe, which faces continued geopolitical risks and energy shortages. This ground is generally positive for gold. Gold prices tend to come under pressure before a recession. Also, their returns average 2% during the six months before the recession. It then tends to outperform stocks, with an average return of 16% during the recession. For six months after a recession, gold continues to make decent gains.
“The trend is turning in favor of yellow metal”
Simultaneous rate hikes and a stronger US dollar weigh on gold in 2022. But in the view of ANZ Bank economists, the trend is turning in favor of the yellow metal. Economists explain their views as follows:
The average performance of gold in the last five rate hike cycles was 12-15%. Therefore, we can expect this rate of return in 2023. This means a target price of $1,900 towards the end of the year.
“The interest rate environment is likely to remain supportive until 2024”
According to economists, the Fed will begin lowering interest rates once inflation is managed within the target range. Therefore, the interest rate environment will likely remain supportive until 2024. Based on this, economists make the following predictions:
We also expect a sustained decline in US 10-year real returns, which are likely to stabilize in the second half of 2023. We believe that investors will begin to position themselves in the second half of 2023 against increasing recession risks. It is possible that an economic ‘hard landing’ is an upside risk for gold prices. This is likely to highlight the rate cut in late 2023.
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