Gold prices rose on Thursday, supported by a weakening dollar, as market participants await US inflation data that could influence the Federal Reserve’s policy path. Analysts interpret the market and share their forecasts.
“Bulls remain in a strong position”
After gold’s strong start to the year, the momentum is starting to fade as the $1,880 level has proven to be stubborn resistance. However, the market remains reasonably upbeat as some analysts expect weak inflation data to push prices above $1,900 by the end of the week.
cryptocoin.com As we have reported, on Thursday, the US Department of Labor will release the highly anticipated Consumer Price Index. Economists expect prices to fall significantly in December. Annual inflation is forecast to fall to 6.5% from 7.1% reported in November. Further cooling in prices and falling bond yields in December will be a welcome development for zero-yield gold. Looking at the technical chart, FXTM senior research analyst Lukman Otunuga says the bulls remain in a strong position at the next key level at $1,900.
“Gold’s move last week showed the right direction for 2023”
Ole Hansen, head of commodity strategy at Saxo Bank, notes that while gold has a chance to climb above $1,900 ahead of the weekend, he sees some downside risks starting to emerge. Hansen states that the market can already be priced in a soft CPI data. He adds that a rally in gold could lead to some profit taking after a solid start to the year. Hansen says that at current levels, investors should not chase the market. He also notes that those holding tactical long positions may want to reduce their risk. In this context, the analyst makes the following statement:
Gold’s price action last week, I think, showed us the right direction for 2023. But while the direction is right, I believe the timing may be wrong. Activity from long-term investors in the ETF market remains moderate, while momentum supports technical and speculative buying (primarily by shorting for now). This increases the risk of short-term correction.
“Gold investors may face a difficult road in the near term”
Commerzbank precious metals analyst Carsten Fritsch also warns that gold investors may face a difficult road in the near term as the Federal Reserve continues its aggressive stance on monetary policy and markets try to adjust to falling inflation expectations. In a note Tuesday, Fritsch noted that there is already a significant discrepancy between market participants’ expectations for the Fed’s monetary policy this year and what the Fed continues to convey. The analyst also highlights the following:
According to Fed Fund Futures, the market predicts a rate peak of less than 5% in the spring and the first rate cuts towards the end of this year. The Fed, on the other hand, forecasts an interest rate peak of over 5%. It has also firmly denied any rate cuts this year so far.
“We foresee a gold price of $1,850 by the end of 2023”
Carsten Fritsch adds that if the market starts to believe the US central bank’s monetary policy forecasts, gold may see reselling pressure. Therefore, the analyst warns that we should not assume that the current price increase will continue for much longer. However, despite the short-term volatility, Fritsch maintains his long-term bullish stance. In this regard, he makes the following statement:
This does not change our fundamentally positive view of the prospects for the gold price. We also expect the Fed to cut interest rates at the end of the year. Because the inflation rate will have fallen enough by then, and the labor market is unlikely to be as tight as it is now. We anticipate a gold price of $1,850 by the end of 2023. However, the upside risks to this forecast have increased recently.
“Gold prices are very well supported”
US 10-year Treasury yields fell as the dollar index approached a seven-month low. A weaker dollar makes dollar-priced bullion more attractive to other currency holders. Ajay Kedia, director of Mumbai Kedia Commodities, comments:
Gold prices are well supported as the dollar weakens. However, on the technical front, the bullion is facing resistance near $1,880. Therefore, it has been consolidating in a range for a few days.
“The up move will probably be very short-term!”
Economists polled by Reuters estimate consumer prices rose 6.5% year-on-year in December after rising 7.1% in November. Michael Langford, director of corporate consulting firm AirGuide, comments:
If the lower-than-expected CPI is announced, we may see the gold price above $1,900. However, any upside move will likely be very short-term as investors will lock in their profits.
“The market may continue to trade sideways ahead of the data”
Boston Federal Reserve bank leader Susan Collins says the central bank is likely to raise interest rates by a quarter point at its upcoming policy meeting, the New York Times reported. The Fed had hiked rates by 75 bps four times last year before slowing to a 50 bps increase in December. Kitco Metals senior analyst Jim Wyckoff explains:
Prices are on a downward trend as shorter futures traders took some profits ahead of the CPI report. Also, the market may continue to trade sideways ahead of the data.
According to Craig Erlam, a senior market analyst at OANDA, this could be a great report if we get another good piece of data showing that inflation is falling faster than expected. Erlam says that despite continuing concerns over the scale and impact of the Covid epidemic in China, the largest gold consumer, “a strong recovery from China is expected over the long term, which could spur additional demand.”
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