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(Kitco News) – The gold market shows relative strength in the face of rising interest rates and the US dollar continuing to trade near its highest level since 2002. According to a market analyst, this could be a tactical moment to buy gold.
In his latest research note, Nicky Shiels, head of metals strategy at MKS PAMP, said that rising economic risks are helping gold find a solid base around $ 1,660, even as the Federal Reserve holds its aggressive monetary policy while lowering its growth prospects.
On Wednesday, after raising interest rates by another 75 basis points, the US central bank’s economic projections signaled that the federal funds rate will peak around 4.6% in 2023. Although interest rates are expected on the rise, the Federal Reserve lowered its growth forecast, expecting the US economy to grow 0.2% this year and 1.2%, down from its June projections.
During the press conference, Powell warned that consumer economic pain is on the horizon as the central bank focuses on reducing inflation.
#Powell on aggressive rate hikes: no one knows if this process will lead to a recession or how significant this recession will be. It depends on how quickly price pressures decrease and if we get the labor supply. Failure to restore price stability would mean more suffering. #POWERED pic.twitter.com/tEKFWPwsVJ
– Kitco NEWS (@KitcoNewsNOW) September 21, 2022
“Gold hit new weekly lows and then highs (after Powell’s pressure) in just 45 minutes; something that hadn’t happened on the FOMC day in a while,” Shiels said in the note. “Powell was neither aggressive nor dovish, but grim; there will be further pain and a soft landing is increasingly unlikely. Not to mention the pace of Fed hikes clearly indicates a clear political error on inflation.”
Shiels added that even bearish speculative positioning could now work in gold’s favor as the precious metal was not loved, seeing continued solid selling for much of the summer. He noted that gold has been so mistreated that it is becoming more immune to oversized Federal Reserve rate hikes.
Shiels pointed out that September. The Wall Street Journal’s headline, which reads “Gold Loses Haven Status,” indicates how bitter the mood is among gold investors.
“The irony is, similar to the ‘kiss of death on the front page’, only when you throw in the towel (when the last of the golden bulls surrenders) will gold return to the fore,” he wrote. “This WSJ headline / article doesn’t do gold much favor, BUT there were very similar front page articles in 2015 (right after the first Fed hike), after which gold entered a bull market.” .
With gold prices seeing a solid rebound from Wednesday’s two-year lows, Shiels said gold has enough momentum to push $ 50 higher in the near term.
“We don’t think this FOMC has been a particularly dovish turning point (the Fed’s pivot is not visible), but it’s just that the sentiment / positioning against the US dollar has become too overvalued and fully priced for upside this year and Likewise, sentiment / positioning has become too undervalued in gold, “he said.
While gold has room to rise, Shiels said the market needs to see a fundamental shift for a sustained rally.
“For gold to worry more about future economic pain (ie, regain its true refuge characteristic), as indicated by the continued inversion of the US yield curve, new bad news is needed,” he said. “An escalation in geopolitics, in which Putin has announced a” partial mobilization “of forces to support his war in Ukraine, will not alone drive the breakdown price of gold; it is old recycled bad news.”
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