Will Gold Survive Another 75 Basis Points Up?

Will Gold Survive Another 75 Basis Points Up?

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(Kitco News) – The gold market is ending a five-week losing streak, and while sentiment appears to be changing, some analysts say the precious metal still faces a challenging environment next week.

August gold futures is expected to end the week up more than 1% to last trade at $1,721.40 an ounce.

All eyes will be on the Federal Reserve next week as markets expect the Federal Reserve to hike rates by another 75 basis points. Some currency analysts have said that although the US dollar has slipped from its recent 20-year highs, the US Federal Reserve’s aggressive stance will continue to support the greenback.

“Against the backdrop of a hawkish Fed and slowing global growth, we believe the dollar is about to regain broad-based strength,” economists at Capital Economics said in a report on Friday.

Marc Chandler, managing director at Bannockburn Global Forex, said that while gold prices have room to rally higher next week, the central bank’s decision could limit gains.

“The Fed will most likely not only rise by 75 basis points, but also signal that the adjustment is not over yet. I expect gold to struggle near $1750 and the 20-day moving average to be just above it [$1,752],” he said.

However, some analysts believe the Federal Reserve’s tightening cycle will have less of an impact on the US dollar and financial markets. Currency analysts at TD Securities view Wednesday’s decision as more neutral for the greenback as the market has priced in much hawkish stance.

“This meeting carries far less weight compared to the last two, and the bar seems high to tactically drastically change the forex trading landscape. Despite this, we see little reason to undermine USD resilience, while we see little reason it will surge higher from this meeting,” the analysts said.

With recession concerns mounting, some analysts have said the Federal Reserve may be nearing the end of its tightening cycle, which will be downright bullish for gold.

“Gold prices rise as global recession fears reset rate hike expectations from all major central banks. Gold is starting to behave like a safe haven as weaker economic growth will force many central banks to abandon their aggressive tightening plans,” he said. “Edward Moya, Senior Market Analyst at OANDA. “Gold might face resistance at $1750 but if not, not much will stand in the way until $1800.”

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

“The market senses that the rate hike cycle will end earlier due to the rapidly decelerating growth. Friday’s US services PMI was shockingly weak, meaning the Fed will pause at around 3% and likely cut in 2023. If those cuts really come into view, gold will rise on USD weakness,” said Adam Button, chief currency strategist at Forexlive.com.

On Thursday, markets will be anxiously waiting to see if the US has slipped into a technical recession following the release of the first second quarter GDP figure. Many economists dismissed first quarter weakness as a trade imbalance; However, data from the Atlanta Federal Reserve shows GDP contracting 1.6%, in line with the contraction seen in the first quarter. The traditional definition of a recession is two consecutive quarters of declines.

Last week, Bank of America said it sees the US slipping into a mild recession by the end of the year.

Another European crisis

Along with the Federal Reserve’s monetary policy decision, analysts have also said they will monitor the ongoing geopolitical uncertainty unfolding in Europe. On Thursday, Italy was engulfed in political unrest after Prime Minister Mario Draghi resigned following the collapse of his national unity government. The nation is expected to hold snap elections in the fall.

At the same time, economists continue to digest the European Central Bank’s announcement on the Transmission Protection Instrument. The program will be used to buy bonds from members of the Eurozone to ensure all returns are matched and risk of fragmentation is avoided.

Sprott Hathaway Special Situations Strategy portfolio manager John Hathaway 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.

“The price of gold could easily revisit record highs if there is a crisis in the currency markets,” he said. “The next black swan out there will be related to unruly FX markets.”

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

“As long as there are concerns about the euro, there is room for gold and the US dollar to both trend higher,” he said.

data to view

Other economic data economists to watch next week include US Conference Board consumer confidence, 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: Advance Q2 GDP, Weekly Unemployment Claims

Friday: Personal Consumption, Personal Income, PCE Inflation

Disclaimer: The views expressed in this article are those of the author and may not reflect 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. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage resulting from the use of this publication.

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