The tug of war between the Federal Reserve’s hawkish monetary policy bias and the risk of a potential recession continues to dominate the market. In this environment, gold prices continue to remain neutral.
Gold remains in balance, awaiting Fed decision and Powell
There is some technical momentum behind gold. However, analysts say it lacks enough fuel to climb above the key resistance at $1,980. Heading into the weekend, December gold contracts were last traded at $1,945.60. Thus, approximately unchanged from last Friday’s close. This marked the fourth week in a row that gold closed Friday just below initial resistance around $1,950. According to some analysts, this shows how balanced the market is right now.
The push and pull in the gold market will be on full display next week when the Fed announces its latest monetary policy decision and updated economic projections. Expectations are that the Fed will not increase interest rates next week. However, most likely, Fed Chairman Jerome Powell will maintain his hawkish stance on monetary policy. TD Securities interest rate analysts comment:
Powell’s press conference and dot chart revisions may have a hawkish flavor as Fed officials are unlikely to close the door on further rate hikes.
This situation continues to support the precious metal
CME FedWatchTool shows markets currently see a roughly 60% chance of interest rates remaining unchanged for the rest of the year. However, these market expectations are relatively volatile and are likely to change rapidly. Powell is likely to keep his rhetoric on a tight leash. However, analysts state that monetary policy is losing its effectiveness. Edward Moya, senior market analyst at OANDA, makes the following assessment:
The general message among global central banks is that interest rate hikes are coming to an end and this means bullishness for gold. Gold may not be ready for a breakout. But there is a risk that central banks might break something. This continues to support the precious metal.
Technicals for gold prices are positive but…
Colin Cieszynski, chief market strategist at SIA Wealth Management, says gold will have a hard time rising above $1,980 ahead of the Fed meeting. However, he also notes that the market looks ripe for a technical bounce.
cryptokoin.comAs you follow from , gold is stuck in the near term. However, Cieszynski says the long-term bullish outlook remains firmly in place. He adds that the autoworkers’ strike, which began Friday, serves to underscore the economic challenges facing the Federal Reserve and other central banks around the world. He also points out that workers are demanding a significant increase in wages to combat inflation. In this context, Cieszynski makes the following statement:
As a result, central banks face problems. Wage inflation continues to rise. The inflation problem is not going away and this supports gold.
Gold’s fuel is insufficient for now to go higher!
Everett Millman, precious metals expert at Gainesville Coins, says gold’s resilient strength shows its potential. Millman notes that given the Fed’s monetary policy and where the U.S. dollar is currently trading, gold prices should be at least below $1,900. Based on this, Millman comes to the following conclusion:
Lack of clarity regarding the health of the global economy continues to support gold prices. There is some fuel to keep gold prices above $1,900. But it’s not enough to take it higher.
Next week’s data and events agenda
The Fed will get most of the attention next week. However, markets will also closely monitor the monetary policy decisions of the Bank of England, the Bank of Japan and the Swiss National Bank.
Investors are closely monitoring gold demand in Japan. Because the weak yen is creating record domestic demand for the precious metal. Gold prices are currently trading near record highs above ¥284,000 against the yen. Additionally, physical gold bullion premiums remain near all-time highs.
- Tuesday: US housing starts and building permits.
- Wednesday: Federal Reserve monetary policy decision.
- Thursday: Swiss National Bank monetary policy decision, Bank of England monetary policy decision, Philly Fed survey, Existing home sales, Bank of Japan monetary policy decision.
- Friday: S&P flash PMI survey.
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