Federal Reserve Chairman Jerome Powell ‘closed the door’ to prevent the dovish trend from entering the market. Therefore, gold prices will likely continue to struggle next week.
Gold prices have the potential to extend losses!
cryptokoin.comAs you follow from , at an event hosted by the International Monetary Fund on Thursday, Jerome Powell said he wasn’t “confident” the central bank’s monetary policy was restrictive enough to reduce inflation to its 2% target. Powell also stated that the Fed would not hesitate to raise interest rates again if inflation pressures continue to increase.
Lukman Otunuga, head of market analysis at FXTM, says gold prices have seen their worst week in six weeks as Powell continues his tightening trend. Gold contracts for December delivery fell nearly 3% compared to last week, falling to $1,939.90. Otunuga interprets the latest developments as follows:
Powell stated that the Fed remains cautious but is willing to raise interest rates if necessary. Investors still price the possibility of a rate hike in December at 10%. However, the timing of the Fed’s first rate cut has been pushed back from June to July next year. Gold has the potential to extend its losses after failing to surpass the $2,000 psychological level. A solid breakout and a daily close below $1,945 could open the doors towards the 200-day SMA at $1,934.
No big impetus to buy gold
Bart Melek, head of commodity strategy at TD Securities, says Powell’s comments continue to support the strength of the U.S. dollar and higher bond yields. He states that these are two important obstacles for gold prices. “Due to the Fed’s tightening trend, there is no big impetus to buy gold right now,” says Melek.
If gold prices are to rise, this environment must be created!
Gold investors focused again on US monetary policy as the geopolitical uncertainty that pushed prices to $2,000 continued to weaken. Although Israel continues its ground attack on Gaza in its new war with Hamas, the conflict is under control for now. Meanwhile, gold prices may see lower levels next week. However, it is holding up much better than oil, which is suffering as the geopolitical fear trade unwinds.
At the same time, some analysts note that lower oil prices will help calm inflation fears. They argue that this will create room for the Fed to soften its hawkish rhetoric. Therefore, they state that this could work in gold’s favor. But Bart Melek says there is a renewed focus on US economic data, with particular attention to next week’s Consumer Price Index, which means there is still a significant way for inflation pressures to ease. Economists expect 12-month inflation to rise 3.3%, compared to an annual increase of 3.7% in September. Melek evaluates the effects on gold prices as follows:
The Fed has clearly said it needs to get inflation under control. So if gold is to find any support next week, inflation needs to be much closer to 3%.
Hot CPI puts pressure on gold, but…
Warmer-than-expected inflation could put pressure on gold prices next week, says Commerzbank commodity analyst Barbara Lambrecht. However, she states that a significant decline can be seen as a buying opportunity. In this context, Lambrecht underlines the following points:
If US inflation numbers surprise on the upside, gold prices could fall further in the short term. But in principle, we believe the US interest rate cycle has peaked and the medium-term outlook is positive for gold.
Next week’s data and event agenda
Besides inflation data, some analysts also point to retail sales figures. They state that if this data is weaker than expected, gold may be offered as a safe haven. They say this would signal to markets that consumers are beginning to falter and cannot support current economic activity.
Meanwhile, US government debt will also be on the radar next week as the US government faces the possibility of another shutdown if Congress does not pass funding legislation by November 17. Some commodity analysts have said that possible turmoil in the bond market could be positive for gold in the near term. James Stanley, senior strategist at StoneX Group, comments:
If we look at the past month, it was the sell-bond-buy-gold type of trade that helped gold as yields soared. A deeper reversal at 2/10 could be positive for gold. However, normalization of the curve may remain a downward factor. Gold prices will likely continue to consolidate in the wide range between $2,000 and $1,800.
- Tuesday: US CPI
- Wednesday: US PPI, Retail Sales, Empire State Manufacturing Survey
- Thursday: Weekly jobless claims, Philly Fed Survey
- Friday: US housing starts and building permits
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