Federal Reserve Chairman Jerome Powell reiterated his stance that interest rates should be higher for longer. However, it provided little new guidance on monetary policy towards the end of the year. Amid these developments, the gold market continues to trade near session highs.
The market has already priced in the bad news!
Analysts say the gold market has already priced in a lot of bad news. He also notes that the Fed approaching the end of its tightening cycle should not provide the same headwinds for the precious metal. cryptokoin.comAs you follow from , at an event hosted by the Economic Club of New York on Thursday, Powell said the Committee is committed to reducing inflation to its 2% target. However, he also underlined the increasing uncertainty in the global economy. In this context, Powell made the following statements:
A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much with the risk of tightening it too little. Too little tightening could cause above-target inflation to become entrenched, ultimately requiring monetary policy to drain more persistent inflation from the economy at a high cost to employment. Increasing too much could also cause unnecessary harm to the economy. Given where we are with the uncertainties and risks, the Committee is proceeding cautiously.
Jim Wyckoff: Gold bulls are relieved
Meanwhile, gold is trading at its highest level since early August. Analysts say there is not much stopping gold from returning to $2,000. Kitco senior market analyst Jim Wyckoff comments:
Gold bulls are relieved that Fed Chairman Powell’s statements at the Economic Club of New York today were not viewed as more hawkish.
Edward Moya: Gold is Wall Street’s favorite trade
Analysts say that in addition to gold approaching $2,000, its rise is even more impressive considering where bond yields are at. The yield on 10-year bonds is trading at 5%, the highest level since July 2007. Meanwhile, geopolitical uncertainty continues to rise as the world deals with two major conflicts. For this reason, analysts state that the high negative correlation of the gold price with bond yields has broken down. Aside from Russia’s war with Ukraine, many analysts are waiting to see whether Israel’s war with Hamas will create more chaos and instability in the Middle East. Edward Moya, senior market analyst at OANDA, makes the following assessment:
Volatility in the region is expected to remain mostly high. This will enable gold’s trajectory to move towards the $2,000 level. The gold price also benefits as the rise in bond yields creates some credit risks in the market. Gold is Wall Street’s hottest trade right now. Because the bond market looks set to send the US economy into a recession with ‘higher for longer’ getting painfully higher.
Shiny metal will remain a tempting asset as fears grow
Some analysts say gold will remain an attractive asset as fears about U.S. debt grow. It’s possible that this sentiment could drive more investors away from the bond market, pushing yields higher. There is concern in the market that the Fed may lose control of the yield curve, which will force them to start buying bonds and expand their balance sheets.
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