The Fed misses a lot of rate hikes: Why is gold at $1,800?

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(Kitco News) – Markets expect the Fed to err on the side of tightening, with President Jerome Powell admitting this week that the real mistake is the failure to control inflation.

Recession fears and a hawkish Federal Reserve have caused bouts of volatility this year — the S&P 500 had its worst half year since 1970, while bitcoin experienced its biggest quarterly drop in more than a decade. As for gold, it held steady, with the precious metal down just 1% since the start of the year.

Analysts believe the precious metal has done an “amazing job” in storing value. But many are neutral on the precious metal until more US data shows that inflation has peaked and growth is slowing.

The headline that made many investors cautious this week was Powell saying that the US central bank may take things too far and potentially risk a recession for the sake of price stability.

“Is there a risk that we are going too far? There is certainly a risk. But it is not the biggest risk to the economy. The biggest mistake we make is failing to restore price stability,” Powell said during the policy committee meeting. European Central Bank Forum on Central Banks in Sintra, Portugal.

At the time of writing, the August Comex gold futures contract was trading at $1,808.50, flat on the day.

Making gold reading more difficult is that many investors have rebalanced their portfolios for the second half of the year in light of mounting recession calls, Edward Moya, chief market analyst at OANDA told Kitco News.

“There are some worrying calls from others that gold could be subject to some additional selling pressure here. That is if the dollar remains somewhat supported,” Edward Moya, chief market analyst at OANDA, told Kitco News. “It is difficult to assess the real market views. We are seeing a marked change in the situation. But the outlook for gold should remain somewhat sideways. Next week, there will be a lot of focus on whether we see any signs that Fed members are becoming more Optimistic that inflation is cooling down.

Moya added that there are already signs that the slowdown is hitting the economy a little faster than many had expected.

“We really need to see the data that shows that peak inflation is in place. We are in a volatile period because this question is not going to be answered with a single data point. We need to see some reports. And you need to hear from corporate America and at the moment that is not the case.” .

Since touching $2,000 again in March, gold has been stuck in a “selling rallies” type of trading, according to Sean Lusk, co-director of Walsh Trading, to Kitco News.

“The problem for gold is that all the rallies are being sold off due to Fed hawks. There is no love here for the precious metal when the economic outlook is uncertain. In addition, there are differing opinions on whether or not inflation is peaking,” said Lask.

In this environment, gold and silver will not see a bounce for another two weeks. This is why Lusk waits for a better seasonal time frame when buying more physical gold.

He noted that “mid to late July is where we can get some movement to the upside. During the second half of summer and into Labor Day weekend is when physical demand increases.”

At the moment, there is a risk that gold may drop to the $1,780 level. If that fails, the precious metal is in danger of falling to $1,730 an ounce. This is the bottom of the price where Lusk expects to see a higher move. He said, “$1,782 is the May low. If we break that, the next target is $1,760 – the pre-Christmas low and then $1,730. That could be where we go until we see a bounce.”

Moya is watching $1,785 an ounce, indicating significant support around that range. “If gold gets uglier over the next week of trading, it should have a big support at $1,785, and that could continue because the dollar’s ​​peak may be in place,” he said.

Next week’s data:

Tuesday: US factory orders
Wednesday: US ISM Non-Manufacturing PMI
Thursday: US ADP Nonfarm Payrolls, Unemployment Claims
Friday: Non-farm jobs in the United States

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.

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