Gold prices tested a two-month high at around $1,850 as markets expected the Fed to lay the groundwork for a rate hike in March following Wednesday’s monetary policy meeting. According to one analyst, the gold market will be sensitive to aggressive US monetary policy.
“There may be a sharp downward pressure on gold prices”
Standard Chartered Bank precious metals analyst Suki Cooper comments:
While he believed gold prices were already priced in in a number of macro headwinds, including rate hikes and USD strength, gold also found downside support from price-elastic physical demand. It may be difficult to maintain the upside momentum ahead of an anticipated hike.
Suki Cooper states that the biggest obstacle for gold is its speculative position. While the net position of gold has dropped sharply from record highs in 2020, he says the market’s speculative positions are still solidly bullish. According to the analyst, the current market position is in stark contrast to the start of the last tightening cycle in 2015. Stating that the March FOMC meeting is about eight weeks later, the analyst makes the following comment:
In 2015, managed money net positions turned into negative territory about five weeks before the December 2015 rate cut. A potential fluctuation in positions can put a sharp downward pressure on prices.
Suki Cooper notes that historically, gold investors reduced their exposure to gold prior to a rate hike and returned to gold within six months of the cycle. However, the analyst also states that it is a little different this time, as market expectations seem very aggressive.
cryptocoin.com As we reported, the Federal Reserve plans to end its monthly bond purchases in March and raise interest rates. Markets have even started pricing in a potential move of 50 basis points. In total, markets are pricing in at least three rate hikes by 2022. There are also expectations that the Federal Reserve will begin reducing its balance sheet before the end of the year. The analyst explains his market stance as follows:
While real interest rates rose, gold prices did not follow, which indicates that the gold market is cautious about market pricing in line with the Fed’s increase expectations.
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