According to analysts, gold needs to rise decisively above $2,000 as investors turn their attention to the Fed. Israel’s war with Hamas has so far remained within the borders of Gaza. Gold may be losing its safe-haven appeal as the world adjusts to the conflict in the Middle East. Amid these developments, analysts are making a situation assessment for the gold price.
The gold price remains balanced under the influence of opposing winds!
The gold price was unable to sustain the $2,000 level due to a renewed focus on the Federal Reserve’s monetary policy, which supports the strength of the US dollar and bond yields hovering near 5%. The renewed selling pressure began a day before the Fed released its latest monetary policy statement. Ricardo Evangelista, senior analyst at ActivTrades, notes that gold remains in contention with the market supported by geopolitical uncertainty and weakened by the Fed’s hawkish monetary policy stance. In this context, the analyst makes the following assessment:
The conflict in Gaza attracts attention. Financial markets continue to price in the risk of conflict escalation. This increases the demand for gold, which is a safe haven. At the same time, the US dollar remains strongly supported relative to other major currencies. The Fed meets this week and there is still some uncertainty about whether Jerome Powell and his colleagues will raise rates once again. This uncertainty supports the dollar and keeps Treasury yields high. It also limits the upside impact of the haven trade for gold.
The Fed will stop, but will maintain its hawkish stance!
Markets expect the Fed to keep interest rates unchanged following its monetary policy meeting on Wednesday. But expectations are growing that the central bank will be able to maintain restrictive interest rates until the first half of 2024. TD Securities analysts comment:
The Fed will likely continue its hawkish policy trend, consistent with the September dot chart. However, the Committee will reiterate that it intends to “proceed with caution” in formulating its next policy steps.
The pressure on the gold price is likely to increase
Commodity analysts at Commerzbank say any suggestion by Fed Chairman Jerome Powell that a rate hike is still on the table at the December meeting could put further pressure on the gold price in the near term. They also note that markets will look at non-farm employment data coming on Friday. Thus, they add that they will look for signs of loosening in the market. In this regard, analysts underline the following points:
If this does not happen again, it may become more likely that the Fed will raise interest rates in December again. It’s true that interest rate expectations have had less of an impact on the gold price lately. However, this does not mean that this situation will continue in the coming weeks. We therefore caution against assuming that the rally in gold we have seen in recent weeks will simply continue as it has due to exceptional circumstances.
Gold is more likely to go to $1,800 than $3,000!
Alex Kuptsikevich, senior market analyst at FxPro, says the $2,000 resistance remains in place. That’s why he states that gold faces a tough struggle. Kuptsikevich adds that 10-year bond yields hovering around 5% could be an attractive entry point for investors, which would divert investment capital away from gold. In this regard, the analyst shares the following assessment:
The moment for policy reversal is approaching as more and more major central banks move from active rate-hiking mode to a wait-and-see approach. This increases the appeal of long-term bonds, gold’s main rival. The attractive yield on government bonds justifies selling gold under current conditions. In the current environment, gold seems more likely to move closer to $1,800 than to $3,000.
Gold price must be stable above $2,000 for it to advance further!
According to some analysts, if gold wants to maintain its current shine, its price needs to rise decisively above $2,000. OANDA’s senior European market analyst, Craig Erlam, explains his view in this direction as follows:
Despite making short-term moves above this important psychological level, gold is currently unable to gain any traction. This further reinforces how great a resistance level this is. Also, if he can make a significant move on it, he can accelerate as a result.