Gold prices closed a volatile trading week as pressure from the high interest rate outlook of the US Federal Reserve (Fed) continued to overwhelm traditional supporting factors, causing the precious metal to head towards its third consecutive week of decline.
At the beginning of the week, gold prices once maintained the important support level of 4,000 USD/ounce and surged to over 4,300 USD/ounce. The upward momentum was maintained until before the Fed policy meeting when spot gold prices at one point touched 4,381.83 USD/ounce - the highest level of the week.
However, the situation quickly changed after the Fed kept interest rates unchanged but signaled tougher on inflation. New economic forecasts show that more and more Fed officials are supporting the possibility of raising interest rates before the end of the year.
Along with that, new Fed Chairman Kevin Warsh emphasized that the top priority of the US central bank is to ensure price stability.
The right way to manage monetary policy is to fulfill the task assigned by Congress, which is to ensure price stability," Mr. Warsh said.
This message caused the USD to rise sharply and US bond yields to rise, putting significant pressure on gold. By the end of the week, spot gold prices fell to about 4,160 USD/ounce, nearly 5% lower than the peak set in the middle of the week.
Mr. Ole Hansen - Head of Commodity Strategy at Saxo Bank said that the gold market is falling into a state of lack of clear direction after a strong sell-off.
Investor sentiment is unlikely to improve significantly until prices actually improve. Currently, the 200-day moving average is still an important technical threshold. Gold prices are significantly lower than this level, making many trending investors not ready to return to the market," he said.
According to Mr. Hansen, the most important thing at this time is that gold must continue to maintain the 4,000 USD/ounce support zone.
If this milestone is successfully protected, the market can see the recent decline as just a relatively shallow correction in the long-term upward trend that started in 2022 and peaked in history in January this year," he said.
In addition to the impact from the Fed, the market also recorded more positive signals for global energy supply as transportation through the Strait of Hormuz is gradually being restored.
However, according to many experts, inflationary pressure has not completely disappeared because the process of bringing oil and natural gas flow back to normal levels may take months. This makes central banks continue to maintain a cautious stance on interest rates.
Mr. Christopher Wong - Strategy at OCBC said that the resumption of transportation through the Strait of Hormuz is a positive factor for gold, but is still overwhelmed by the prospect of the Fed continuing to tighten monetary policy.
Historically, gold often performed ineffectively during the market's preparation for a first wave of interest rate hikes," Mr. Wong said.
Meanwhile, Mr. Simon-Peter Massabni - Head of Business Development at XS. com said that gold is being caught between two opposing forces.
On one side is the strengthening USD, rising US bond yields and Fed's tough monetary policy. On the other side are persistent inflation, global economic instability and demand for gold reserves from central banks. These factors still create fundamental support for gold," he said.
According to Mr. Massabni, the gold market in the near future may witness larger fluctuations than forming a clear trend.
From a more cautious perspective, Mr. David Morrison - Senior Analyst at Trade Nation believes that the risk of price decline is still prevailing.
It is currently very difficult to predict the next direction of gold, especially in the context of a strong USD increase. The impact from the Fed's tough stance is greater than the supporting factors for the gold market," he said.
Agreeing with this view, Mr. Kevin Grady - Chairman of Phoenix Futures and Options said that gold may continue to retest the 4,000 USD/ounce support zone if there is no strong enough buying force.
I think the market can completely return to test the recent bottom. Trading volume is still quite low and has not shown new cash flow returning strongly," he said.
According to Kitco News' weekly gold survey, 70% of Wall Street experts predict gold prices will fall next week, only 10% believe prices will increase and 20% predict the market will move sideways.
Next week, investors will continue to monitor important US economic data such as Q1 GDP, Personal Consumption Expenditures (PCE) and PMI surveys on manufacturing and services. Experts believe that after the Fed sends tougher signals on inflation, the gold market will be particularly sensitive to new economic data.
However, many financial institutions still maintain a positive outlook for gold in the long term. Mr. Sameer Samana - Head of Global Stock and Real Estate Strategy at Wells Fargo - said that even if gold falls below $4,000/ounce, there is not much room for a deep decline.
To make gold truly lose its appeal, countries around the world must control budget deficits and maintain price stability for a long time. Currently, that has not happened," he said.
