‘Perfect Storm’ 8 Analyst: Gold Goes To These Levels!

‘Perfect Storm’ 8 Analyst: Gold Goes To These Levels!

The dollar has again become expensive, making dollar-priced bullion more valuable to offshore buyers. Thus, gold prices gradually fell from the one-week high recorded in the previous session on Wednesday. Analysts interpret the market and share their forecasts.

“The market is very quiet as it is in a holiday mood”

Spot gold rose more than 1% on Tuesday following the dollar’s slump. However, it fell 0.2% to $1,813.55 on Wednesday. US gold futures traded at $1,823.60, down 0.1%. Ajay Kedia, director of Kedia Commodities, Mumbai, comments:

Gold is seeing a slight pullback after yesterday’s rally. The market is very quiet due to the holiday mood.


“This is necessary for a more tangible recovery in gold prices”

Last week, Federal Reserve Leader Jerome Powell said the Fed will raise more interest rates next year, even if the economy slides right into a possible recession. Rate hikes typically put pressure on gold, says OCBC FX strategist Christopher Wong. However, as the Fed enters the late cycle of tightening, he notes that a recovery of gold is possible. In this context, the strategist makes the following statement:

However, a more tangible recovery in prices will likely require more than a calibration in Fed tightening, possibly pausing and possibly lowering interest rates.

This means the ‘perfect storm’ for gold!

The Bank of Japan (BoJ) has decided to review its yield curve control policy. After surprising the markets with this decision, the yen rose to a four-month high against the dollar. RJO Futures senior market strategist Bob Haberkorn says weaker housing information is leading to confident buying in precious metals. He also notes that this, along with the BOJ’s decision, was the “perfect storm” this morning.

'Perfect Storm' 8 Analyst: Gold Goes To These Levels!

Gold has lost more than $260 since its March peak as central banks ramped up their efforts amid rising inflation. But it is experiencing the most favorable quarter since the beginning of 2020, up 9.4% so far. Jeffrey Sica, CEO of Circle Squared Alternative Investments, comments on the possibility that the Fed will continue to raise interest rates:

I see it will cast a dark shadow on the gold market. But I still think that we are acting on the upper side.

'Perfect Storm' 8 Analyst: Gold Goes To These Levels!

“These continue to be headwinds for gold investors”

Rob Haworth, senior investment strategist at Bank Wealth Management, states that gold prices jumped in mid-week amid weak inflation information and hopes that the Fed will soon end its rate hikes. But Haworth points out:

The hawkish announcement by the Fed late Wednesday weighed on gold as investors were pricing in a higher final interest rate. The Fed’s latest economic projections show that top Fed officials expect to keep interest rates above 5% by 2024.

Looking ahead, Haworth says data on higher interest rates and softer inflation continue to be headwinds for gold investors.

'Perfect Storm' 8 Analyst: Gold Goes To These Levels!

“Two factors indicate that gold will see a strong rise”

Higher interest rates typically rely on dollar and Treasury yields. Thus, it makes non-yielding assets, such as expensive metals, less attractive in comparison. Adrian Ash, BullionVault’s research manager, comments on the latest developments as follows:

The rise in interest rates with the dollar reduces the attractiveness of gold as an unyielding preservation instrument of the dollar. Still, the resistance in bullion prices this year stands in stark contrast to the crash in 2013. It also contrasts with the worst year in living memory for stock/bond portfolios.

As a portfolio diversifier, Adrian Ash believes the price of gold will draw attention around the new year, “both because of the seasonal rebalancing and because January brings the Chinese New Year and is currently the heaviest single gold-buying festival in the world.” These two factors mean that gold will typically see a strong rise in January.

'Perfect Storm' 8 Analyst: Gold Goes To These Levels!

“Real returns are positive, quite a lot of expensive metals fall”

Looking ahead, however, the assumptions of Matthew Miller, equity analyst at CFRA Research, are on the bullish side for industrial metals and neutral to slightly bearish for premium metals. “As long as real yields are positive and rising, expensive metals are expected to underperform,” Miller says.

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“A lower peak interest rate means bullish for gold”

According to the report of Société Générale economists, gold rose after the Consumer Price Index (CPI) data. The yellow metal is currently trading above the $1,800 level. Economists make the following statement:

Inflation data in the US for November came in at 6.0% year-on-year of the core CPI, compared to analysts’ estimate of 6.1%. This was particularly supportive for gold as it was thought to further persuade the Fed to slow its tightening pace at the FOMC meeting. Low inflation is typically downside for gold. However, bullion has recently been held up by the Fed’s expectations for slowing rate hikes. Gold is a non-interest bearing asset. Therefore, a lower peak interest rate means bullishness for bullion.

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