© Reuters.
Investing.com – Markets revolve around one question, when will the Fed stop? Three words control the markets, raise gold, plunge the dollar, and change the economic map, and these three words are primarily responsible for the violent fall of gold in Friday trading at the end of last week.
On Friday, we again saw the impact of that buzzword as Federal Reserve Governor Christopher Waller, one of the biggest rate hawks, said he wanted more monetary tightening despite evidence that US inflation was steadily emerging from its highest levels in recent months. .
Waller’s call helped cause a small collapse in gold prices, which until Thursday appeared to be on track for a new record high. Higher interest rates tend to benefit the dollar and affect gold. While the yellow metal is a common insurance against economic and political troubles, it does not yield anything.
Gold wasn’t the only commodity hurt by Waller’s comments on Friday. A rebound from a one-year low also stabilized with only modest progress rather than potentially larger gains, after the International Energy Agency (IEA) raised its forecast for oil demand in 2023.
“The Fed’s hawkish comments have increased the risk of further tightening after May and that interest rates may need to stay higher for longer,” said Ed Moya, an analyst at online trading platform Onda.
The Fed added 475 basis points to rates over the past 13 months, bringing them up to a peak of 5% from the 0.25% level they were at during the start of the COVID-19 outbreak in March 2020.
Prior to Waller’s remarks on Friday, some economists were actually betting on the Fed to pause interest rates in its next policy decision on May 3rd.
This was after expansion – a measure of inflation – at an annualized rate of 5% in March versus 6% in February. The PPI data also revealed a sharp slowdown in inflation rates. However, the path to the Fed’s target of 2% is still far away, which exacerbates fears of inflation and damage to the economy, as happened with the banking sector. This prompted the economist, Mohamed El-Erian, to ask the Fed to amend its policy and inflation target and raise it slightly from 2%.
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Gold: market settlements and activity
Gold bulls’ dreams of a fairytale rally were cut short on Friday by the dollar’s rally from a one-year low, handing those who were long on the yellow metal their biggest loss in three weeks.
Trading closed at $2,017.70 an ounce, down $39.50, or 1.9%, on the day. The recession wiped out Thursday’s combined gain of $30, or 1.5%, in gold for the month of June. Friday’s fall is the biggest one-day drop for gold futures since a 2.1% drop on March 31. For the current week, gold closed for the month of June down 0.5%.
It settled at 2,004.26 USD, down by 35.85 USD, or 1.8%. It reached its lowest level at $1,992.46 during the session.
Before Friday’s surprise drop, the gold bulls were having their most euphoric period in less than a week, gaining more than $50, or 2.6%, in just three sessions between Monday’s close and Thursday’s settlement.
“In the short term, gold could remain very volatile in both directions here,” said Moya of Onada.
Despite the recent setback for gold, Moya said there are enough reasons for investors to remain positive about the safe haven.
He added that “the Fed’s hawkish comments have raised the risk of further Fed tightening beyond May and that interest rates may need to stay higher for longer.” “In order to beat inflation, we will need to see economic pain and that should support the bullish case for gold.”
Gold: price forecast
said Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com. Spot gold’s weekly close of $2,004 also forms a so-called Doji hesitation above the 5-week exponential moving average, or EMA, of $1,976.
Dixit said: “With the beginning of next week, the recovery of the bullish momentum depends on the ability of long positions to defend the support areas at $1,992 and $1,988, and further declines can be seen towards $1,976 and $1,967.”
“On the upside, spot gold needs to make a sustained break above $2020, followed by $2032, in order to resume the upside move, which aims to retest $2048 and $2055 before rising to an all-time high of $2,073. “
