Gold prices rose as the dollar fell on Tuesday. However, the yellow metal slumped to near its lowest level in 2.5 years as expectations for more aggressive rate hikes by the US Federal Reserve kept some investors on the sidelines. Analysts interpret the market and share their forecasts.
“There are significant obstacles limiting the upward movement of gold”
Spot gold hit $1,620.20, its lowest level since April 2020, on Monday. It later rose 0.95% to $1,637.66 as of writing. U.S. gold futures were trading at $1,644, up 0.69%.
The dollar index (DXY) fell 0.1%, easing a twenty-year high that scaled in the previous session. The benchmark 10-year Treasury yield also slipped slightly below the 12-year peak marked on Monday. Yeap Jun Rong, IG market strategist, comments:
Slightly lower US interest rates and the dollar have likely provided some room for gold prices to stabilize after the recent sell-off. The upside risk to inflation and thus the tightening of monetary policy still remains an important obstacle that limits the upward movement of gold.
“It is possible for gold to jump to this level”
In an indicator of investor sentiment, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 30,333,443 ounces on Monday. Thus, it saw its lowest level since March 2020.
Wave 3 likely completed the $1,619 support, according to Reuters technical analyst Wang Tao. Therefore, it is possible for spot gold to bounce back to $1,639.
“Gold’s haven asset status failed to hinder sales flow”
Fed officials calmed rising volatility in global markets on Monday. They said their priority was to control inflation. Gold prices have dropped more than 20% since hitting the key $2,000 level in March. In a note, ANZ analysts highlight:
Gold’s status as a haven asset in times of economic hardship failed to stifle the flow of sales.
“Gold prices outlook also tied to Federal Reserve”
Bob Haberkorn, senior market strategist at RJO Futures, comments on the developments as follows:
Gold isn’t the only game in town when it comes to security. The money also goes to US Treasuries. Gold’s outlook is also tied to the Federal Reserve. If you’re a gold investor, you have some kind of storm to weather right now.
cryptocoin.comAs you follow, DXY has reached its highest level since 2002. This made gold more expensive for offshore buyers. Edward Moya, senior analyst at OANDA, points out in a note:
The movement in the dollar is not over. It is possible that this will continue the pressure on gold prices.
“Gold prices, not too bad”
The prospect of further rate hikes currently dampens the sentiment for gold. Some analysts say that gold is still supported by recession risks and geopolitical tensions. Ross Norman, an independent analyst, comments:
We have dollar strength. Also, there is an increase in US Treasury rates, which will usually push gold down. However, generally speaking, gold isn’t going too badly on the plan of things.
“The main factors pushing the precious metals markets south: Interest Rate and DXY”
In the physical market, China’s net gold imports through Hong Kong rose nearly 40% in August, reaching the highest level in four years. Gold prices have been shaken in recent weeks by the more aggressive stance of the Fed and other global central banks. Senior analyst Jim Wyckoff comments in a note to clients:
Rising government bond yields and the US dollar index are the main bearers pushing the precious metals markets south.
“Medium-term outlook is also bleak for gold prices”
In a daily market update, Kinesis Money market analyst Rupert Rowling wrote:
The series of interest rate hikes by central banks last week put gold under heavy short-term pressure. Banks are not expected to change course in the coming months. Therefore, the medium-term outlook also looks bleak for the precious metal.
“Gold investors will cling to that hope, but…”
Rowling reminds us that a series of inflation data is expected this weekend, which is expected to show that consumer prices are still rising at a faster rate and that the peak is still not reached. According to the analyst, this will strengthen the hawkish strategies of central banks, which use rate hikes to bring inflation back to target figures of around 2%. That’s why the analyst says that the uptrend is a distant hope at the moment. In this context, Rowling makes the following statement:
Gold investors will cling to hopes that inflation will peak soon and that interest rate hikes that have so far dragged the price of gold in recent months will finally soften. However, they will probably have to wait a little longer.
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