An unexpected rise in consumer prices in August strengthened bets on the Fed’s aggressive rate hike. Gold prices fell more than 1% as the dollar rose after that. Analysts interpret the market and share their forecasts.
“The dollar is likely to continue to put pressure on the gold price”
Spot gold was up 0.21% at $1,705.2 at the time of writing, after yesterday’s steep decline. U.S. gold futures fell 0.10% to $1,715.30. Tai Wong, senior trader at New York Heraeus Precious Metals, comments:
Gold fell further with higher-than-expected CPI. Thus, 75 basis points is now firmly confirmed. The USD is rising and it is likely to continue to put pressure on gold. Unless there is a very hawkish Fed result next week, the USD is unlikely to make new highs. However, gold is likely to hold the $1,690-1,700 range in the short term. They’ll probably wait and see. Because the next meeting will be in November.
US CPI exceeded expectations, gold price fell
cryptocoin.comAs you can follow, monthly US CPI unexpectedly rose in August. Falling gasoline prices were offset by increases in rent and food costs. The dollar index rose 1%, making gold more expensive for offshore buyers. Markets now see an 81% chance for a 75 basis point rate hike at the Fed’s September 20-21 meeting. Ole Hansen, head of commodity strategy at Saxo Bank, said:
Ultimately, this basically points to the FOMC’s ongoing efforts to contain inflation.
“Traders seem confident that inflation will not get out of hand”
Andrew Schrage, CEO of Money Crashers, notes that the strength of the dollar is directly related to the CPI data. He also states that this is dragging the gold markets. In this context, Schrage makes the following statement:
We’ll see if gold can shake this correlation and maintain its long-term role as a hedge against inflation. For now, however, traders seem confident that inflation will not get out of hand. They just seem confident that the Fed will need to act more aggressively and perhaps longer-than-expected to squeeze it in.
“This is not great news for gold in the near term”
Andrew Schrage says actions to tame inflation likely involve higher interest rates. He also notes that higher interest rates will likely strengthen the dollar and weaken demand for dollar-denominated commodities such as oil. Schrage continues his statement as follows:
This isn’t great news for gold in the near term. But as this CPI report reminds us, inflation has proven difficult to predict. Therefore, conditions are likely to change rapidly.
“Gold price recovery potential is likely limited”
The gold price started the week with more rebound from its last drop below $1,700. However, the US has seen strong sales after the CPI. However, strategists at Commerzbank see limited recovery potential for the yellow metal. In this context, strategists make the following assessment:
The weak US dollar, along with the general expectation that US inflation has cooled for the second month in a row, likely indicates that the peak of inflation is finally behind us. This is likely to deter the Fed from imposing more aggressive rate hikes. At least that’s what the market hopes for. However, the potential for gold price recovery is likely limited, given that inflation will remain high.
“Yellow metal focused on 2022 low at $1,680”
Open interest on gold futures markets rose nearly 2.4k contracts in the second straight session on Tuesday, according to preliminary data from CME Group. Volume followed suit and reversed two consecutive daily pullbacks. Accordingly, approximately 90.2 thousand contracts increased.
The sudden drop in gold prices on Tuesday came after rising open interest and volume. According to market analyst Pablo Piovano, this indicates further weakness remains for the precious metal. Conversely, the $1,680 low YTD is likely to remain bearish for now.
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