Gold prices rose on Friday as the dollar hovered near a one-week low. But the Federal Reserve’s commitment to contain inflation has kept the precious metal on track for its biggest quarterly drop since the start of 2021. We have compiled analysts’ gold predictions and market comments for our readers.
“Gold’s upside momentum is waning”
Spot gold was trading at $1,667.99, up 0.5% at the time of writing. Prices are down more than 7% so far in the quarter. However, after two weeks of declines, it has gained 1.5% this week. U.S. gold futures rose 0.4% to $1,675.30. City Index analyst Matt Simpson’s gold forecast is as follows:
Already, the bullish momentum of gold is waning. It is also paused in the previous consolidation zone around the $1,660 – $1,680 area. Gold’s rise will likely be limited unless we see another drop for the dollar.
“I am not too low on gold”
SPDR Gold Trust Holdings, the world’s largest gold-backed exchange-traded fund, posted 0.29 tons gain on Thursday. This marked the first entry in two weeks. Ajay Kedia, director of Kedia Commodities in Mumbai, comments on the gold forecast:
Let’s say that as October moves into November, physical demand from India and China will be supportive. Therefore, I am not very down on gold. Prices will likely find support around $1,600.
Gold forecast: Some relief is possible, but…
Gold is accepted as a measure against inflation. However, US rate hikes have increased the opportunity cost of holding the zero-yielding metal. It also made the dollar the safe-haven of choice. Meanwhile, European Central Bank (ECB) policymakers voiced greater support for another major rate hike, as inflation in Germany hit double digits. Edward Moya, senior analyst at OANDA, commented:
A slightly weaker dollar today could provide some relief for gold. However, your main takeaway will be what happens with interest rates. Because the short end of the curve is still rising strongly. You’re probably looking at a gold market that will react to anything related to the dollar and Fed expectations.
TDS gold forecast: Further drop possible in next phase
Several Fed officials reiterated the Fed’s commitment to aggressively raise interest rates to combat rising inflation. In a note, TD Securities highlights the following for gold forecasting:
Interest markets are pricing in the potential for higher interest rates to continue for a while. Gold prices are likely to fall further in the next phase of the walking cycle.
“Fed’s hawkish policy has had a doubly negative impact on gold”
Rupert Rowling, market analyst at Kinesis Money, attributes gold’s pullback to the latest wave of hawkish rhetoric from top Fed officials. The analyst explains his views as follows:
The Fed’s hawkish policy of raising interest rates is not only making non-yielding assets less attractive, but also helping the US dollar hit record highs given the typically inverse correlation of gold. So it had a doubly negative effect on gold.
Gold forecast: sees a short-term correction
The dollar’s movement has been the strongest in more than two decades compared to others. As such, it outweighed the more traditional reasons for owning gold in the short term. Michael Cuggino, head and portfolio manager of Permanent Portfolio Family of Funds, evaluates the developments as follows:
However, this situation is probably unsustainable in the long run. It will improve over time as global interest rates rise. This, in turn, will allow gold to continue its traditional role as a long-term asset against money supply growth and a hedge against uncertainty.
Also, Cuggino says that gold is seeing a short-term correction, down year-over-year. However, he notes that the current price offers a reasonable entry point for long-term investors who desire its benefits, even though its long-term underlying causes remain unchanged.
“The risk of capitulation increases under it”
TD Securities economists expect the yellow metal to remain under pressure as the US dollar is also in demand. From this point of view, they underline the following points:
After a short period of relief, the recovery and rising yields in the USD started to put pressure on precious metals again. Moving into October with key labor market and inflation data ahead of the next Fed meeting, the risk of capitulation remains for the yellow metal.
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