This year has been tough for precious metals investors. Cryptocoin. com, precious metals could not normally react to bullish news and the correction that started in August 2020 intensified at the end of the second quarter. Until a few days ago, the gold price dropped by about 10%. According to market analyst Jordan Roy-Byrne, the expectation of higher real interest rates due to the Fed’s tapering program and future rate hike could keep precious metals under pressure in the first quarter.
“In this case, the gold price will have the potential to approach 2020 peak”
The latest data (23 December) shows the possibility of a 58% rate hike in March and 71% in May. As the S&P 500 closes at a record high and the Dow Jones recovers strongly from its 200-day moving average, the analyst says he doubts rate hike expectations will fall. Jordan Roy-Byrne highlights these technical levels:
The key level for the gold price is $1,750 on a weekly basis. If gold breaks this level, it risks falling to the 40th monthly moving average at $1,630. Alternatively, if gold can trade as high as $1,900, it could invalidate the bearish scenario.
Metals and miners rallied after hitting another oversold peak in recent weeks. The analyst sees this oversold bounce as likely to continue into January, noting that a good portion of the ‘pre-interest’ decline, however, occurred in the weeks before the actual rate hike.
On the other hand, he reminds that gold has a record of recovery after the first interest rate hike in a new cycle. In the last four Fed rate hike cycles, the price of gold has recovered by an average of 28%. In addition, these rebounds have often reached or very close to 2-year highs. The analyst summarizes his assessment as follows:
If precious metals falls before the real interest rate hike, it creates a very bullish outlook for the 2022 balance. In this case, gold will have the potential to approach its 2020 peak.