It’s been a tough week for gold. The market experienced its longest daily losing streak in seven years. Thus, prices remained close to their lowest levels since March.
“I am bearish on gold, but…”
Gold prices have the potential to decline further in the near term. However, some analysts are optimistic that there is a light at the end of the tunnel. The precious metal ended Friday’s session with modest gains, ending a nine-day losing streak. cryptokoin.comAs you follow from , Friday’s gains came after gold prices fell to a seven-month low following US NFP data. But disappointing wage growth and an unchanged unemployment rate provide room for the Fed to leave interest rates unchanged next month, some analysts say.
Michael Moor, founder of Moor Analytics, says that although the gold market remains in a bearish correction, it is testing critical downside exhaustion levels. Therefore, he states that this will prompt some investors to investigate the market’s upward potential. He adds that one way to manage potential trades is to take a long position in two futures contracts. The advice would be to liquidate one position and let the other run once the trade becomes profitable. Moor notes that the second position could be stopped or a potential rally could confirm the end of the correction. Moor adds that he sees another major exhaustion level below $1,826, at $1,796. In this context, Moor makes the following statement:
If this level holds and we see a rally, this could signal the beginning of a new long-term bullish structure. I am bearish on gold. All technical data shows everything is pointing lower. But these exhaustion levels are where investors should test the market.
Will the Fed keep rates ‘higher for longer’?
At the same time, many analysts are waiting to see whether bond yields have peaked. That’s why it remains neutral on gold. Fixed income analysts note that bond yields are driven by expectations that the Fed will still keep interest rates in restrictive territory for the foreseeable future, even if it has finished raising interest rates. Many analysts expect 10-year bonds to reach 5%. Although there is room for bond yields to rise further, some say they have peaked. Edward Moya, senior market analyst at OANDA, makes the following assessment:
I think it’s pretty clear that these latest employment numbers are about as good as it gets for the U.S. economy. Given what’s happening in the bond markets, it’s only a matter of time before corporate America starts to struggle…Many parts of the economy will be choked by rising interest rates.
Is the US economy heading towards recession?
Meanwhile, the rise in long-term bonds means the yield curve is steepening. Some analysts say this is another strong indication that the U.S. economy is headed for recession. Many still view the bond market sell-off as normal. Others say it would take too much for a crisis like the one in the British bond market last year. In a note published by Capital Economics’ chief market economist Jonas Goltermann, he underlines the following points:
The sell-off in government bonds over the past three months raises troubling questions about the risks of financial instability and the outlook for fiscal policy. The rate at which bond yields are rising is potentially concerning. Because it can lead to disruption of market functioning and a self-reinforcing cycle of forced sales that depress bond prices and increase volatility.
““There are many bullish factors for gold.”
Edward Moya says that it is possible that inflation data coming next week will provide some support for gold in the short term. Moya notes that low inflation data will increase expectations that the Fed is done raising interest rates. He also notes that this will alleviate some of the pressure on bond yields. Moya sees the potential for gold prices to drop to $1,800. However, he notes that increasing market risks make the current price an attractive entry point. In this regard, the analyst makes the following statement:
In the short term, I think there’s a buying opportunity here for gold, even if bond yields rise. With so much economic uncertainty, there are many bullish factors for gold.
Next week’s data and events agenda
- Wednesday: US PPI, September FOMC meeting minutes.
- Thursday: US CPI, Weekly unemployment claims.
- Friday: University of Michigan preliminary consumer sentiment.
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