After three consecutive weeks of decline, the world gold market is facing an important trading week as investors must re-evaluate the monetary policy outlook of the US under the new Chairman of the US Federal Reserve (Fed) Kevin Warsh.
At the end of last week, spot gold prices retreated to around 4,155 USD/ounce, lower than 220 USD/ounce compared to the peak of 4,381 USD/ounce set in the middle of the week. The sharp decline appeared after the Fed kept interest rates unchanged but sent a tougher message about inflation, while leaving open the possibility of raising interest rates before the end of the year.
According to Kitco News' weekly gold survey, most Wall Street experts remain cautious about gold in the short term. Up to 70% of surveyed experts predict gold prices will continue to fall next week, while only 10% believe prices will increase and 20% predict the market will move sideways.
Mr. Nikos Tzabouras - Senior Market Analyst at Tradu. com - said that risks are still leaning towards price reductions.
According to him, the Fed's signal to maintain a tough monetary policy longer than expected is putting significant pressure on gold. If the USD continues to maintain its strength and US economic data does not weaken significantly, gold prices can completely retest the psychological support zone of 4,000 USD/ounce.
Meanwhile, Mr. Kevin Grady - Chairman of Phoenix Futures and Options - said that the market has not yet shown strong enough buying power to reverse the downward trend.
He believes that the 4,000 USD/ounce zone is still the most important support level for gold in the short term. If this area is maintained, bottom-fishing buying power may appear and help the market stabilize again.
From a technical perspective, many experts assess that the 4,120 – 4,000 USD/ounce zone will play an important supporting role next week. Conversely, the 4,200 – 4,250 USD/ounce zone is currently the nearest resistance zone that gold needs to overcome to improve market sentiment.
However, not all experts are pessimistic about the prospects of precious metals.
Mr. Axel Merk - Founder and CEO of Merk Investments - said that the market is reacting quite strongly to changes in Fed policy.
According to him, the foundational factors supporting gold have not disappeared, including prolonged budget deficits, increased US public debt, demand for gold from central banks and existing geopolitical risks.
I don't think the story of gold revolves only around interest rates. In the long term, fiscal issues and public debt are still very important factors for the precious metal," he said.
This week, the focus of the market will be the Personal Consumption Expenditures (PCE) index – the Fed's favorite inflation measure – along with US manufacturing and service PMI surveys.
If data shows that inflation remains persistent and the US economy continues to maintain good resilience, the market may increase bets on the possibility of the Fed raising interest rates in the last months of the year. This scenario is likely to continue to put pressure on gold.
Conversely, if economic indicators signal weakening, expectations of the Fed tightening policy may be reduced, thereby creating conditions for gold to recover after a series of weeks of correction.
In the short term, most experts believe that gold is still at a disadvantage. However, with unchanged long-term supporting factors, many analysts still see deep declines as accumulation opportunities for long-term visionary investors.
