2023-12-12 15:29:00
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Investing.com – According to some analysts, next day will be an important test for the gold market, as a hawkish Federal Reserve meeting on rates might put downward pressure on the already sensitive market following the record rise witnessed by the yellow metal last week.
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After recording a record high near the level of $2,150 per ounce at the beginning of last week, it has since declined and is now hovering around the level of 2,000 per ounce, as the gold market witnessed the greatest amount of volatility since mid-August 2020, following gold recorded its previous record high. .
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Ole Hansen, head of commodity strategy at Saxo Bank, said last week’s rally and subsequent sell-off were not helpful for gold price movement in the long term.
“Technically, gold has a lot of work to do to make up for the damage that has been done,” he said.
Combined with overbought momentum, Hansen said the gold market has seen an exaggerated rally on expectations of potential interest rate cuts in 2024, which might keep prices below $2,050 an ounce in the near term.
The narrative on a possible rate cut in March changed following employment data on Friday showed the US economy created 199,000 jobs last month, beating expectations. Meanwhile, the unemployment rate fell to 3.7%, down from 3.9% in October.
“At the very least, we will witness market volatility in the coming period, and the scope for a new positive surprise for gold will be limited,” Hansen said.
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On the flip side, Craig Erlam, chief market analyst at Awand, said he also expects to see higher volatility in gold in the near term.
While Philip Strebel, chief market strategist at Blue Line Futures, confirmed that he expects to see some downward pressure on gold. He added that following Friday’s employment report, Federal Reserve Chairman Jerome Powell is unlikely to change his hawkish stance, even as the central bank is expected to leave interest rates unchanged.
It’s not just hawkish Powell who threatens the gold market. Along with the monetary policy decision, the Fed will release its updated economic forecasts, including its interest rate forecast.
In its last update in September, the central bank indicated that it only sees two potential rate cuts in 2024. However, markets are pricing in more than 100 basis points of easing next year.
“There will be a collision between the Fed and market expectations unless we see a significant adjustment in expectations,” Hansen said.
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While some analysts said that if core inflation remained above 3%, this would force the Federal Reserve to maintain its tightening tendency, which is what happened, as it recorded (excluding food and energy) on an annual basis 4% in November, which is what experts expected, This is the same percentage recorded in last October’s reading. It recorded 0.3% in November, which is what experts also expected, while the percentage recorded in the October reading was 0.2%.
While the index for November recorded 3.1%, and expectations indicated an increase by the same percentage, following recording 3.2% last October.
As for 0.1% in November, expectations were at 0.0%, the same as the reading recorded in October.
Support is at $1980 an ounce
The Bank of England and the European Central Bank are also scheduled to issue monetary policy decisions on Thursday, with markets expecting interest rates to remain unchanged. However, investors are still eager to see if there is a shift in their tightening biases.
Although gold prices may face difficulties over the next few hours, some analysts point out that the market is still in good shape.
Joseph Cavatoni, North American market strategist at the World Gold Council, said he didn’t see Monday’s failed rally as too damaging. He said that the rise shows the extent of the potential that the precious metal has when it sees the right market conditions.
Stribley said that although prices are falling, he believes the current price represents an attractive buying point.
“Although Powell will not be ready to cut interest rates in March, the slowdown in the economy means that interest rates will eventually fall and that is what will push gold higher,” he said.
Stribley indicated that he is looking for support to be tested at the $1,980 per ounce level.
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