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(Kitco News) – The gold market is showing relative strength amid rising interest rates and a US dollar that continues to trade near its highest level since 2002. According to a market analyst, now could be a tactical time to buy gold.
In her latest research note, Nicky Shiels, head of metals strategy at MKS PAMP, said rising economic risks are helping gold find a solid bottom around $1,660 even as the Federal Reserve maintains its aggressive monetary policy stance while lowering its growth outlook.
On Wednesday, after raising interest rates by another 75 basis points, the Federal Reserve’s economic forecast signaled that the federal funds rate will peak in 2023 at around 4.6%. Although interest rates are expected to rise, the Federal Reserve lowered its growth forecast The US economy is set to grow 0.2% this year and 1.2% below June forecasts.
During the press conference, Powell warned consumers of economic woes as the central bank focuses on bringing down inflation.
#Powell to aggressive rate hikes: no one knows if this process will lead to a recession or how deep that recession will be. It depends on how quickly the price pressure eases and whether we can get workers. Failure to restore price stability would mean greater pain. #FED pic.twitter.com/tEKFWPwsVJ
— Kitco NEWS (@KitcoNewsNOW) September 21, 2022
“Gold made new weekly lows and then highs (after Powell’s presser) in just 45 minutes; something that hasn’t happened on FOMC day in a while,” Shiels said in the note. “Powell was neither restrictive nor moderate, but somber; there will be more pain and a soft landing becomes less and less likely.
Shiels added that bearish speculative positioning could now also work in gold’s favor as the precious metal has been unloved and has seen steady solid selling throughout most of the summer. She noted that gold has been hit so hard that it is becoming increasingly immune to the US Federal Reserve’s outrageous rate hikes.
Shiels pointed out that the Wall Street Journal’s Sept. 20 headline, which read, “Gold Loses Safe Haven Status,” shows the bitterness of sentiment among gold investors.
“The irony is, much like the front page ‘kiss of death’, only by throwing in the towel (when the last few gold bulls give up) will gold make a comeback,” she wrote. “This headline/WSJ article doesn’t do gold much favor BUT there were very similar front page articles in 2015 (right after the Fed’s 1st rate hike) that gold entered a bull market.”
As gold prices staged a solid rebound from Wednesday’s two-year lows, Shiels said gold has enough momentum to propel $50 higher in the near term.
“We don’t think this FOMC was a particularly dovish game changer (the Fed pivot is not visible), but it’s just that sentiment/positioning on the US dollar has been over-hyped and fully priced in for rate hikes this year , and similarly sentiment/positioning has become too undervalued in gold,” she said.
While gold has room to move higher, Shiels said the market needs to see a sea change for a sustained rally.
“For gold to become more concerned with future economic woes (ie regain its status as a true haven), as indicated by the ongoing US yield curve inversion, new bad news is needed,” she said. “An escalation in geopolitics, with Putin announcing a “partial mobilization” of forces in support of his war in Ukraine, will not alone fuel gold price breakouts; it is old bad news recycled.”
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