Analysts say there will still be more downside risks to gold prices.
After losing about $60 a week, gold is now vulnerable with the possibility of a strong sell-off as the market prepares for the possibility of the US Federal Reserve (Fed) raising basic interest rates sharply. hands during the policy meeting in July 2022. However, experts also talk about the possibility that the price of gold will bottom and thus create attraction for many investors to buy.
Currently, the gold market is currently affected by the strengthening of the USD index, which inevitably affects investors’ interest in gold in the context of growing economic recession fears.
Precious metals analyst at Standard Chartered Bank, Ms. Suki Cooper, analyzed: “Gold has fallen to the low level set in September 2021 and is currently in an oversold state. Given that gold is caught between the risks of escalating inflation and the fear of a recession, gold still benefits somewhat from the safe-seeking cash flow.”
Data on the US labor market in June 2022 was higher than expected by experts, the US economy added 372,000 jobs. This upbeat data reassured the market that the Fed will continue with its plan to raise interest rates by 75 basis points at the Fed’s policy meeting in the next two weeks. The CME FedWatch Index shows that the probability of the Fed raising interest rates by 75 basis points is estimated at 95.4% and the possibility of the Fed raising rates by 100 basis points is about 4.6%.
Charlie Ripley, chief investment strategist at Allianz Investment Management, said: “The latest report means the Fed will need to do a lot of thinking about interest rate policy to cool demand in the economy. The economy and the possibility of a 75 basis point hike is almost certain. What matters to investors right now is not how quickly the Fed will raise rates, but how high they will need to raise rates to cool down. economy”.
Gold futures contract delivery price fell by an estimated 60 USD/ounce, the price of gold futures contract in August 2022 traded at 1,740.9 USD/ounce.
Analysts said that there will still be more downside risks for gold prices, experts say that gold prices may drop to the threshold of 1,700 USD/ounce and most likely 1,650 USD/ounce. However, at this level, the gold price will bounce back, investors will buy from these levels, said Edward Moya, senior market analyst at OANDA fund.
“Once the $1,800 threshold is broken this week, the selling pressure will increase. So where will the gold price fall? We still watch the market and believe that gold will be able to drop to $1,700 an ounce. If things get worse, gold price may fall to the price range of 1,650-1,675 USD/ounce – that’s when buyers will return Gold is vulnerable to this decline. Gold price may meet resistance at 1,770 USD/ounce,” said Moya.
Copper prices are currently challenging the threshold of $ 1,690 / ounce, also according to Ms. Cooper. The level of $1,690/ounce can be considered as a ceiling price. The period of July 2022 as the period of low demand for gold. “Gold is still considered a safe investment tool, but this has changed, we think gold will still be supported by macro factors. Therefore, gold price may challenge with other factors. threshold is lower, but inflation concerns will soften the downward momentum.”
Gold’s performance was supported by how the market is calculating the Fed’s rate hikes, analysts pointed out.
“The drop in the price of gold can be seen as a mere reaction to what is happening in the Treasury bond market because Treasury yields are being traded more into account of the possibility that the Fed will tighten. tight interest rate policy,” explained Mr. Moya.
But once the policy meeting in July 2022 ends, the macro context will be favorable for gold prices. The US inflation report in July 2022 will support gold prices.
“The expectation here is that the inflation report will further underpin a 75bp hike in interest rates this month. And once that happens, gold will be hit by the weakness of the dollar. Fed rate tightening forecasts,” he analyzed.