With the Fed’s tightening policy already priced in, could the gold price rise next week? With all eyes on the Federal Reserve next week after Friday’s hot inflation data, analysts think gold is in a good position to surprise investors on the upside. Details of the topic cryptocoin.com‘in.
Is gold ready to move up?
Friday’s US inflation figure rose 6.8% in November, the fastest annual increase in nearly 40 years. The response to the data was somewhat mixed, as parts of the report implied that price pressures would potentially reach their peak. “The dollar turned negative as traders predict the Fed won’t have to raise rates before summer,” said OANDA senior market analyst Edward Moya. Moya continued: “The monthly headline CPI in November rose 0.8%, higher than the forecast of 0.7%, but lower than the previous month’s value of 0.9%. Some of the inflation was moderate, but the year-over-year increase was 6.8%, the highest since 1982.
The inflation figure was the determining factor behind how aggressive the Federal Reserve could be on December 15. And as Fed Chairman Jerome Powell’s hawk stance has already been priced in to accelerate contraction, markets will closely monitor other factors such as the dot chart and economic forecasts. However, Bart Melek, head of global strategy at TD Securities, said it might be too soon for markets to expect aggressive rate hikes. Bart Melek says:
The truth is, gold has already responded to Powell, who said that the contraction is likely to increase from $15 billion per month to $30 billion per month. Also, Powell isn’t all that comfortable using the word temporary when talking about inflation. But despite this, it is in balance. Especially after the re-nomination of Powell and the decision to nominate Lael Brainard as Fed vice president, the Fed is now a little more dovish than before.
It’s important to keep in mind that Powell’s choice to deprecate the phrase “inflation is temporary” does not mean that he believes inflation is permanent. According to Angel, Powell believes inflation will stay here for a little longer, but it will start to moderate. The angel says: “For gold, it’s incredibly important to remember that shrinking just a little bit faster doesn’t mean they’re ready. The rate-raising criterion is much higher: full employment. US Treasury Secretary Janet Yellen believes you need to run the economy hot to build capacity.”
CME FedWatch Tool is pricing the first rate hike in June with a 43.3% chance. However, Melek warned that this might be too soon. Talking about the course of inflation, Melek says:
My view here is that they are not raising interest rates in June. And it’s starting to look like the pace of inflation acceleration is slowing down. Looking forward to the next few months, we probably won’t see gas prices that much. Just like we did last month. We can see some relief in used vehicles as well. If that’s true, then inflation has peaked and I think the gold market is starting to suspect it.
For gold, a more patient Fed is a good thing, so Angel sees gold trading higher next week. “The best situation for gold is when inflation rises but the rate of inflation slows. A faster reduction in liquidity may also delay the need to raise the policy rate. Real returns will continue to be quite low,” Melek added. On price risk next week, the analyst said, gold is upside: “$1,790-95 is a reasonable level we can be.”
Moya pointed out that the precious metal has bounced back, noting that gold’s last trading range of $1,760 and $1,800 is trying to hold well for the next week. Moya’s comments are as follows:
Much of the inflation is firmer than anyone would want, and this should keep the medium- and long-term outlook for gold bullish. Gold needs to survive a firm consensus on how much the Fed will start raising rates next year. The accelerated rate hike cycle is a big risk and could trigger panic selling that could be a nuisance for gold in the short term, but that’s unlikely to happen.
Data to monitor
Some of the bigger determinants to watch for next week will be Wednesday’s Fed meeting and US retail sales. On Thursday, the European Central Bank will decide on interest rates and US industrial output will be announced. James Knightley, ING chief international economist, said of the Fed’s possible policies:
Despite the uncertainty presented by the emergence of the Omicron variant, without any opposition from other Fed officials, we will see the Fed announce some momentum at its meeting next week. We expect a reduction of $30 billion ($60 billion in purchases) for January and another $30 billion in February, but no further purchases as of March.
Other data to consider are Tuesday’s PPI figures, Wednesday’s NY Empire State manufacturing index and Thursday’s building permits and housing starts, jobless applications and the Philadelphia Fed manufacturing index.
Contact us to be instantly informed about the last minute developments. twitter‘in, Facebookin and InstagramFollow and Telegram and YouTube join our channel!
Disclaimer: The articles and articles on Kriptokoin.com do not constitute investment advice. Cryptokoin.com does not recommend buying or selling any cryptocurrencies or digital assets, nor is Kriptokoin.com an investment advisor. For this reason, Kriptokoin.com and the authors of the articles on the site cannot be held responsible for your investment decisions. Readers should do their own research before taking any action regarding the company, asset or service in this article.
Warning: Citing the news content of Kriptokoin.com and quoting by giving a link is subject to the permission of Kriptokoin.com. No content on the site can be copied, reproduced or published on any platform without permission. Legal action will be taken against those who use the code, design, text, graphics and all other content of Kriptokoin.com in violation of intellectual property law and relevant legislation.