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Will Gold Survive Another 75 Bass Point Rise?

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(Kitco News) – The gold market is coming to the end of a five-week losing streak, and while sentiment appears to be changing, some analysts say the precious metal will still face tough times next week.

August gold futures will end the week up more than 1%, last trading at $1,721.40 an ounce.

All eyes will be on the Federal Reserve next week as markets expect the US central bank to raise interest rates by another 75 basis points. Some currency analysts say that although the US dollar has fallen from recent 20-year highs, the Federal Reserve’s aggressive stance will continue to support the dollar.

“Against the backdrop of a hawkish stance by the Fed and a slowdown in global growth, we believe the dollar will soon resume its broad support,” Capital Economics economists said in a report released Friday.

Mark Chandler, managing director of Bannockburn Global Forex, said that while gold prices could rise next week, the central bank’s decision could limit growth.

“Not only is the Fed likely to move up 75 basis points, but it will also signal that the adjustment is not complete. I believe gold will struggle around $1,750 with the 20-day moving average just above that. [$1,752],” he said.

However, some analysts believe that the Fed’s tightening cycle is having less of an impact on the US dollar and financial markets. Currency analysts at TD Securities view Wednesday’s decision as more dollar-neutral as the market has been hawkish.

“This meeting has a lot less weight compared to the last two and the bar seems to be high in order to tactically change the situation in the foreign exchange market. However, we don’t see much reason for the dollar to weaken, even if we don’t see much reason for it to rise. higher from this meeting,” analysts say.

Faced with growing recession worries, some analysts said the Fed could be nearing the end of its tightening cycle, which would be decidedly optimistic for gold.




“Gold prices are rising as fears of a global recession reset rate hike expectations for all major central banks. Gold is starting to act as a safe haven as weakening economic growth will force many central banks to abandon their aggressive tightening plans. “Edward Moya, Senior Market Analyst at OANDA. “Gold could find resistance at $1,750, but if that doesn’t happen, there’s little to prevent up to the $1,800 level.”

On Friday, preliminary data from S&P Global Market Intelligence showed that activity in the US manufacturing and services sectors fell to the lowest level in two years. The drop in activity reflected similar weakness in Europe.

“The market feels that the rate hike cycle will end early due to the rapid slowdown in growth. Friday’s U.S. services PMI was shockingly weak and means the Fed will pause growth by about 3% and likely cut it in 2023. When these declines really become visible, gold will rise due to the weakness of the dollar,” said Adam Button, chief currency strategist Forexlive.com.

On Thursday, markets will be looking forward to whether the US will fall into a technical recession after the publication of data on GDP for the second quarter in the first reading. Many economists have dismissed the weakness in the first quarter as a trade imbalance; however, data from the Atlanta Federal Reserve shows GDP contracted 1.6%, in line with a decline in the first quarter. The traditional definition of a recession is two-quarters of consecutive recessions.

Bank of America said last week that the US will enter a mild recession by the end of the year.

Another European Crisis

Along with the Federal Reserve’s decision on monetary policy, analysts also said they will be monitoring the ongoing geopolitical uncertainty that is unfolding in Europe. On Thursday, Italy plunged into political chaos after Prime Minister Mario Draghi stepped down following the collapse of his government of national unity. Early elections are expected to be held in the fall.

At the same time, economists continue to analyze the European Central Bank’s announcement of its Transmission Protection Instrument. The program will be used to purchase bonds from eurozone members to ensure that all yields match and avoid any risks of fragmentation.

John Hathaway, portfolio manager at Sprott Hathaway Special Situations Strategy, said in an interview with Kitco News that Europe could be close to a sovereign debt crisis as the central bank continues to expand its balance sheet.

“Gold prices could easily rise above record highs if there is any kind of crisis in the currency markets,” he said. “The next black swan will be associated with unmanaged foreign exchange markets.”

Christopher Vecchio, senior market analyst at DailyFX.com, said he also sees a growing risk of a debt crisis in Europe. He added that both gold and the US dollar would benefit under these conditions.

“As long as there are concerns about the euro, there is scope for gold and the US dollar to rise,” he said.

Data to view

Other economic data economists will be watching next week includes consumer confidence from the US Council of Conferences, pending home sales and personal income and spending data.


Tuesday: Consumer confidence, new home sales,


Wednesday: Durable Goods Orders, Pending Home Sales, FOMC Decision and Statement


Thursday: Q2 Preliminary GDP, Weekly Jobless Claims


Friday: Personal consumption, individual income, PCE inflation




Denial of responsibility: The views expressed in this article are those of the author and may not be those of the author. Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a call for the exchange of goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article are not liable for any loss and/or damage resulting from the use of this publication.

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