Interest rates are rising and the US dollar is trading near its highest level since 2002. The gold market, on the other hand, shows relative strength against them. According to a market analyst, now is a tactical time to buy gold.
“Powell, neither hawk nor dove”
Nicky Shiels, head of metal strategy at MKS PAMP, underlines the rising economic risks in his latest research note. In this context, he says, risks are helping gold find solid ground around $1,660.
cryptocoin.comAs you follow, the Fed raised interest rates another 75 basis points on Wednesday. Later, economic projections from the US central bank signaled that the federal funds rate would peak at around 4.6% in 2023. Continuing to increase interest rates, the Fed lowered its growth forecasts. The US economy will grow by 0.2% this year, below the forecasts of 1.2% in June. During the press conference, Powell warned consumers that economic pain was on the horizon as the central bank focused on reducing inflation. Nicky Shiels comments:
Gold saw new weekly lows and then highs in just 45 minutes. Something happened that hasn’t happened on FOMC day for a while. Powell was neither a hawk nor a pigeon. However, it was gloomy. There will be more pain and a soft landing seems increasingly unlikely. Not to mention the pace of the Fed’s hikes. It clearly points to a clear policy error on inflation.
“When someone throws the towel, gold will make a comeback!”
Shiels also addresses the dislike of the precious metal and its continued solid sales for much of the summer. For this reason, he adds that speculative positions in the downtrend can now work in favor of gold. He notes that gold has been battered too much and has become more immune to excessive rate hikes by the Fed.
Shiels points out that the Wall Street Journal’s September 20 headline, “Gold Has Lost Its Eden,” shows just how grim the mood among gold investors is. Based on this, he comments:
The irony is like the kiss of death on the front page. But when someone throws the towel (the last of the golden bulls gives up) gold will make a comeback. This WSJ headline/article doesn’t do much good underneath. However, in 2015 (just after the 1st Fed hike) there were very similar front page articles. Then gold entered a bull market.
“Gold is very low value right now”
Gold prices made a solid jump from Wednesday’s two-year low. However, it fell hard on Friday. However, Shiels says that gold has enough momentum to push upwards by $50 in the near term. In this context, he makes the following statement:
We don’t think this FOMC is a particularly pigeon game changer. So, the Fed pivot is not visible. However, US dollar-wide sentiment/position alone is overvalued for gains this year. Plus, it’s exactly priced. Similarly, sentiment/position has increased even more. Gold is currently very low value.
“Gold has room for bullishness, but…”
According to Shiels, gold has room to rise. However, he notes that the market needs to see a fundamental change for a sustainable rally.
New bad news is needed for gold to care more about future economic woes. An escalation in geopolitics, where Putin has declared a ‘partial mobilization’ of forces in support of his war in Ukraine, will not, by itself, lead to a boom in gold prices. Because, recycled old is bad news.
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