Sharp Fall? Analysts Share the Next One for Gold!

Gold’s sluggish performance against the US dollar may be masking its role as a global safe-haven asset as it outperforms the Japanese yen and British pound. Also, despite the strong start in August, the gold market is struggling to find consistent bullish momentum as prices remain below $1,750.

“Gold’s performance against sterling and yen could be a silver lining”

cryptocoin.comAs you follow, the gold market continues to maintain its support at $ 1,700. However, it closed August with a fifth monthly loss, down 2% month on month. Now it is struggling to gain steady momentum. Despite its dismal performance against the US dollar, gold starts the new month with solid gains against the pound and yen. Spot gold was last trading at 4,292 yen against the yen, up 1.77% on the day. Thus, the rally of gold broke the two-month consolidation period.

In the UK, spot gold rose roughly 1% against the pound. The last trade was 1,491 pounds. The yellow metal appears to be on the verge of exiting its one-month consolidation pattern. Gold’s rise against the pound came at the same time that the currency fell to a 35-year low against the US dollar. Meanwhile, the US dollar is trading near a 25-year high against the yen. Colin Cieszynski, chief market strategist at SIA Wealth Management, comments:

Gold’s performance against the pound, yen and other global currencies begs the question of whether gold is a store of value. The strength of gold in other currencies is a sign that gold will go higher once the US dollar starts to weaken. Gold’s performance against the sterling and yen could be a silver lining in the growing storm. As long as bond yields continue to rise, gold will struggle against the US dollar.

“Gold’s appreciation is related to poor performance of other currencies”

But Craig Erlam, senior UK and European market analyst at OANDA, warns investors about gold’s performance against other currencies with too much data. Erlam says gold is rebounding against the yen as the currency depreciates due to the widening monetary policy deficit. Because the Bank of Japan is the last major central bank to unsuccessfully loosen monetary policy while trying to increase inflation pressures.

“Gold is performing well against the Yen because this currency is in terrible shape,” says Craig Erlam. The central bank of England faces significant economic headwinds that force it to slow down its monetary policy tightening. So gold is rising against the pound. Erlam notes that inflation and energy crises have significantly damaged the economy, which put pressure on the pound. In this context, the analyst makes the following statement:

The Fed is still looking for the possibility of a soft landing while the Bank of England has given up and just wants to land the plane before it crashes too hard. Looking at gold, I think it has less to do with gold’s safe-haven appeal and more to do with how poorly other currencies are performing.

“Gold is down against the dollar but holding up well”

However, Erlam adds that he still sees a relative strength against the dollar in the gold market. In this regard, he records:

Gold fell against the dollar. But it holds up well. Also, $1,700 represents a good price considering the current environment. A few years ago, if you had told people that gold would trade at $1,700, they would have said it was pretty expensive, and it is.

“Gold will probably fall further”

Huw Roberts, head of analytics at Quant Insight, said in an interview that according to his company’s research, the precious metal is entering a macro regime. It also notes that it fell below fair value levels. With rising interest rates and a strong US dollar, gold prices should trade around $1,760, according to Quant Insight. Gold is about 2% below its fair value. However, Roberts says traders can expect a better entry point.

Gold will likely fall further as the Fed continues to raise interest rates throughout the year. Throughout 2022, inflation has become the Fed’s number one priority. Also, you can’t argue that the Fed has been consistent in fighting inflation.

“Gold is low in value but still possible to get cheaper”

Huw Roberts says that while it’s a challenging environment for gold, there is still potential. He notes that in July, markets began to expect the Fed to change its aggressive monetary policy early on. However, Powell’s hawk comments thwarted this expectation. Markets see a 76% chance of a 75bps move later this month. The analyst comments:

Gold investors got excited about a dove axis. These expectations have not disappeared. They’ve only been pushed back into the second half of 2023. The market currently believes the Fed’s aggressive stance on inflation. However, a lot can happen in the next six months. Looking at the current macro fundamentals, gold is undervalued in the current environment. However, it can still be cheaper. Our models tell us that investors may want to expect a better entry point.

“Therefore, gold becomes a logical choice!”

It matters what drives gold’s macro outlook. Inflation was the most important factor that moved the precious metal in July. But this month’s analysis from QI shows the market is much more balanced between inflation, currency valuation and corporate credit spreads.

Trying to interpret the data, Roberts says tighter financial conditions are increasing company debt. He also notes that this also points to increased economic uncertainty. Increasingly higher margins of return indicate growing fears that the US economy is headed for recession. Roberts explains his views as follows:

It’s as if a perfect picture of gold emerged last month. It acts as an inflation hedge and hedging hedge. If you are looking for a safe haven, what will you buy? You can’t buy treasure because of inflation. You can’t buy money because of King Dollars. Therefore, gold becomes a logical choice.

Contact us to be instantly informed about the last minute developments. twitter‘in, Facebookin and InstagramFollow and Telegram and YouTube join our channel!