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(Kitco News) – Gold is trading near 2.5-year lows after Fed optimism lifted dollar and US Treasury yields. This macro environment is likely to drive more people away from gold, creating a significant buying opportunity, according to analysts.
Volatility in the markets and dramatic trades in the currency markets did not leave gold untouched as the precious metal fell another 1.7% this week. After raising interest rates by 75 basis points for the third time in a row, the Fed raised the interest rate on its funds to 4.4% by the end of 2022 and to 4.6% in 2023.
For the markets, this could translate into another 75 basis point increase in November and an additional 50 basis point increase in December.
“We’ve seen significant increases in markets’ estimates of what the Fed will do over the next year. It’s a pretty big difference from last month, and it’s in line with the Fed being more aggressive,” said Bart Mellick, head of global commodity markets strategy for Securities. , for Kitco News. “Real rates are going up. This is a negative for gold. The higher cost of transportation and the higher cost are likely to drive capital away.”
Also, this kind of tightening means that the peak of the US dollar’s rally is still some time away, which is bad news for gold.
“It looks like this dollar rally hasn’t peaked. The current market environment is likely to remain worrisome. Expectations for a Fed rate hike swing broadly. We won’t see that rally until we see inflation come down,” Edward Moya, chief market analyst at OANDA told Kitco News. . “The problem is we don’t see the economy weaken quickly. When we do that, you’ll see a peak in the dollar. For gold, it’s all about when we see that.”
With the Dow touching a year low on Friday and more volatility ahead, gold is unlikely to see a strong rally in the short term. “We are not going to see a strong rush to buy gold yet. There are low-volatility instruments that are now giving you some returns. That excludes gold,” Moya added.
Eventually, gold will become a safe haven again as appetite for stocks wanes. But before that can happen, the economy needs to slow down, and inflation needs to slow. “Once we start seeing inflation move to a more moderate level, the Fed could quickly turn. With them turning from doves to hawks, they could go the other way. But it’s not likely any time soon,” Milek noted.
The biggest risk to the precious metal is that it drops below $1,600 an ounce. “If we break $1,600, then $1,540 will be the line in the sand where we start to see buyers appear. Gold will benefit from safe haven flows offshore,” Moya said.
Melek also expects gold to drop below $1,600 an ounce. “Volatility will be higher in the future. As volatility increases, margin orders increase. Long positions cannot be extended. We will not see a big return of positions. Bad environment for gold,” he said.
Gold is watching the employment and inflation data coming from September. “The market is still looking at very difficult business conditions in the US and the hint that wage pressures will continue to be a problem,” Melek said.
Market consensus calls for the US economy to have created 300,000 positions in September, with the unemployment rate at 3.5%, close to a 50-year low.
On the positive side, gold at these levels is a great entry point for buyers.
“This makes physical gold cheaper. It is a buying opportunity. The Fed has stressed that they have a dual mandate. With inflation under control, the Fed can reverse quickly in 2023. Real prices will be more favorable for gold,” Malak said. Gold should do well in the long term.
However, at the moment, the resistance is located at $1,678-80, and the support is around the $1,580 level.
Next week’s data
Tuesday: Fed Chair Powell Speaks, US Durable Goods Orders, CB Consumer Confidence, New Home Sales
Wednesday: US pending home sales
Thursday: US Unemployment Claims, Q2 GDP
Friday: US per capita income and PCE price index, Michigan consumer confidence
Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.
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