The gold market is attracting new buyers. Also, fears of further banking turmoil and hopes of a Federal Reserve stall are pushing gold prices towards $2,000. So how will the yellow metal move next?
The expectation that the Fed will begin to lower interest rates is unrealistic!
According to George Milling-Stanley, chief gold strategist at State Street Global Advisors, markets may have been expecting a little too soon that the Federal Reserve will cut rates before the end of the year. After hearing Fed Chairman Jerome Powell’s press conference on Wednesday, Milling-Stanley said it would likely take a deep and sharp recession to get the central bank back from its current course. In this context, the strategist makes the following statement:
I predict that we will probably enter a shallow recession at some point this year. But I don’t think the recession will be deep enough to force Powell to change the cause and cut rates this year. When you look at the labor market, there’s quite a bit of resilience in the underlying economy.
Gold has nothing more to fear!
Despite the Fed’s hawkish stance on inflation, Milling-Stanley says gold prices will fluctuate around $2,000 by 2023. The strategist also notes that he expects a weaker US dollar until 2023 to provide further support for gold. He states that the Fed may raise interest rates another 25 basis points, but will not provide the momentum that the 75 basis point movements in the US dollar provided last year. In this regard, he makes the following inference:
Last year, the main headwind of gold was the strength of the dollar, and these 25 basis points gains will not have the same effect. Gold has nothing to fear from further rate hikes and has everything to benefit from eventual rate cuts.
This situation will continue to support gold prices.
Milling-Stanley maintains his team’s current forecast for gold to trade between $1,600 and $1,900. However, he says the growing banking crisis will be a new factor that should continue to support gold prices at current levels. Based on this, he makes the following predictions:
This banking crisis has fundamentally increased uncertainty, which is reflected in the volatility around market expectations. This will continue to support gold prices. I don’t think we’re seeing an end to this banking crisis; We are currently waiting for the next domino to fall.
Gold seems to shine here
cryptocoin.comAs you follow, the Fed increased interest rates by 25 basis points on Wednesday, in line with expectations. Markets digested the Fed’s decision and Fed Chairman Jerome Powell’s message about a possible pause in tightening. The critical shift in the Fed’s language following the collapse of Silicon Valley Bank was a shift from expectations of ‘continued rate hikes’ to ‘some additional policy tightening’.
When reporters questioned Powell about what this new Fed speech meant, the Fed chair said, “We are no longer expressing that continued rate hikes will be needed to quell inflation… Events in the banking system over the past two weeks have led to tighter credit conditions for households and businesses. It is likely that it will open up and this will affect the economic results,” he replied. In short, the impact of the banking crisis may mean that the Fed’s monetary policy will have less work to do. Edward Moya, senior market analyst at OANDA, comments on these developments as follows:
Gold is becoming a favorite trade on Wall Street as many traders remain nervous after the Fed and how quickly US officials can contain more banking turmoil. Gold is likely to shine here and find a home above the $2,000 level. Running the region to the record isn’t that far.
Gold’s outlook is up
According to analysts, gold has a lot of upside potential if financial stability concerns persist. US Treasury Secretary Janet Yellen failed to quell market fears during her final hearing in Congress. The key question on everyone’s minds is whether Washington is willing to return all US bank deposits after the spikes contributed to the collapse of several US regional banks. Because, the current Federal Deposit Insurance Corp insurance limit is $250,000. And Yellen dismissed the idea on Wednesday. She said each situation will be evaluated individually, she said.
Daniel Ghali, senior commodity strategist at TD Securities, says the outlook for gold is bullish, especially with rising expectations for rate cuts until the end of the year, despite uncertainty about what will happen with the turmoil in the banking sector. The strategist explains his views on this issue as follows:
Gold’s risk balance remains on the upside, with a CTA buying activity potentially supporting prices north of $2,000. A subsequent break to the north of the $2,030 range could set in motion a key CTA buying program. Also, beyond that, discretionary interest on gold may need to rise before prices rise further.
This is a new catalyst and game changer for gold!
Bloomberg data shows gold-backed ETFs added more than 300,000 ounces in the last trading session, marking the biggest daily gain since last June. Nicky Shiels, head of metal strategy at MKS PAMP, comments:
There has been a remarkable flight to the quality offer in classic safe harbors such as gold and US Treasury papers. Gold rose $2,000 from $1,800 in the process. We continue to think that the failure of the SVB is a new catalyst and game changer for gold, as the Fed has officially confirmed that it has disrupted something more important and closer to home.
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