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(Kitco News) – Just when the gold bulls thought it safe to return to the market, the bears once again moved forward, confirming their dominance over the price direction.
Sentiment heading into the weekend has changed dramatically since the middle of the week. Optimism was building in the gold market as it managed to maintain long-term support after the Federal Reserve raised interest rates by 75 basis points and indicated a final rate for the current tightening cycle above 4.5%.
Analysts were saying gold was looking attractive again as the Federal Reserve, with its tough monetary policy measures, threatened to push the US economy to the brink of recession. Powell himself repeated his warning to Jackson Hole that the central bank would inflict some pain on consumers as it slows the economy to lower inflation.
At the same time, many analysts note that gold has been hit so hard that a rally is set to take place. If you want to know how much gold has beaten, just look at the front page of the Wall Street Journal from September 20th. The headline read: “Gold is losing its haven status.”
Many see headlines like this as a sign of a bottom where it’s hard for feelings to get worse. However, a lot can change in the current market environment in 24 hours.
The optimism evaporated midweek as gold looks to end the week at a new two-year low, unable to sustain the growing momentum in the US dollar, which is trading at a 20-year high.
According to analysts, the recent surge in momentum in the King Dollar is due to the collapse of the British Pound. The pound is experiencing its biggest drop since 2016, when citizens abruptly voted to leave the European Union. The Pound ended the week down 4.7%.
It’s not just gold. It is a sea of red across the commodity complex where the US dollar rules the financial markets.
Several analysts note that below $1,650 an ounce, there is not much technical support for the precious metal.
This could be the start of a capitulation movement that will take prices all the way to $1,550 an ounce.
But it’s not all gloomy and gloomy in the market. Even in Friday’s massive sell-off, the precious metal outperformed other assets. Gold prices are down less than 2% this week, while oil prices are down more than 7%.
Gold is also doing much better than stock markets, with the S&P 500 down 5% this week. The Dow Jones Industrial Average fell below 30,000 and ended the week with a 4.5% loss.
In a recent interview with Tavi Costa, portfolio manager at Crescat Capital, David Lane of Kitco News told that he expects to see more weaknesses in the stock markets.
“From my point of view, we’re going to see a bigger drop in the stock markets,” Costa claimed. “I don’t think that’s the environment you want to buy snorkels in.”
George Melling Stanley, chief gold strategist at State Street Global Advisors, said he expects weaker stock markets to boost safe-haven demand for gold. He added that the uncertainty in the market would help prevent gold prices from selling significantly.
“We face a lot of macroeconomic and geopolitical uncertainty and in this environment, I certainly wouldn’t sell my safe-haven assets. At these prices, I would be looking to add to my primary position,” Melling Stanley said.
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