Gold prices rose on Wednesday, supported by the weakening dollar. Investors, however, remain on hold for December Fed Minutes, which could offer clues to the Fed’s tightening path. In the midst of this wait, analysts interpret the market and share their forecasts.
“Fed minutes will affect dollar and gold prices”
Spot gold was trading at $1,853, up 0.78% at press time. U.S. gold futures rose 0.82% to $1,862. The dollar index (DXY) fell 0.4% after hitting a two-week high on Tuesday. A weaker dollar makes bullion cheaper for other currency holders.
As we have reported as Kriptokoin.com, the minutes of the Fed’s December 13-14 policy meeting will be announced today at 22:00 CEST. The Fed had increased rates by 50 bps in December after four consecutive increases of 75 bps each. Hareesh V., head of commodity research at Geojit Financial Services, comments:
Fed minutes will likely give some insight into policy decisions. So this will also affect the dollar and gold. Continuing recession concerns and geopolitical tensions will likely increase gold’s safe-haven appeal in 2023. There is a chance for more entry into gold as the Fed begins to loosen policy.
“If Fed minutes point this out, it creates room for gold”
Ricardo Evangelista, senior analyst at ActivTrades, said that if the minutes reveal that the Fed is considering slowing pace gains and ending the walking cycle at a lower rate, it will create room for further increases in the price of gold.
With an economy that could fall into recession, uncertainty about the Fed’s rate hike path, and geopolitical risks, investors are a bit wary, according to OANDA senior analyst Edward Moya. That’s why the analyst says that gold looks pretty attractive.
“Yellow metal will be traded in this vicinity for most of the year”
Gold is seen as a hedge against inflation. However, rising interest rates reduce the attractiveness of the non-yielding asset. Michael Langford, director of corporate consulting firm AirGuide, says the short-term expectation is for gold to rise to $1,880 and trade around $1,800 overall for most of the year.
“Precious metals therefore attract speculative entries”
Analysts say gold and silver prices hit intraday highs in months on Tuesday as the outlook for precious metals improved markedly recently. Adrian Ash, BullionVault research director, highlights the following in his comment Tuesday:
Gold and silver started 2023 with a typical New Year’s boost. Also, traders expect weak growth, high inflation and a worsening geopolitical outlook. These mean that precious metals attract speculative inflows due to fear and suspicion in the wider financial markets.
BullionVault’s Gold Investor Index, which measures the balance of net buyers over net sellers, makes up a proportion of all users on BullionVault. This index fell to an 11-month low of 53.3 in December. Adrian Ash says precious metals offer obvious trade-offs for the 2023 stagflation consensus. However, only derivatives have so far shown up, with physical buyers and ETF holdings withdrawing at the start of the New Year.
“Central bank purchases may be another factor”
Precious metal prices rose despite the strengthening US dollar as traders focused on lower Treasury yields. Meanwhile, purchases by the People’s Bank of China have raised hope among traders that some central banks may increase their share of gold-allocated reserves. Marios Hadjikyriacos, senior investment analyst at XM, comments:
Central bank purchases may be another factor, following reports last month that the People’s Bank of China has begun to increase its gold reserves.
“Something has to give up in the dollar and gold movement”
Commenting on Marex, Edward Meir, founder of the Commodities Research Group, says the increases in gold and silver are “surprising” given the strength of the dollar. In this context, Meir makes the following statement:
Given that the U.S. Treasury market is not dollar-friendly, we think something has to give up on the unusual dollar and gold movement. We also suspect that the dollar will be the first to drop, unlike gold sales.
Spot gold hit $1,850 – what’s next?
Technical analyst Jonathan Da Silva points out the following levels regarding the technical outlook for gold. On Friday, December 16, gold was trading at $1,775 and we suggested buying the bottom at that time. Spot gold hit $1,849.99 last night. If you’ve read my review regularly, you know that $1,850 has been in sight for the past few months.
What’s next for gold? As a possibility, I expect some resistance at $1,850 and a range development between $1,820 and $1,850. Remember that there is nothing wrong with taking a profit. But keep in mind that the bulls are on their side. The stochastic RSI could go higher as the daily chart below shows. Also, an extended move could quickly push the price towards $1880.