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Gold market: Analyzing factors behind recent fluctuations and future projections


gold market analysis

In recent days, the gold market has experienced a significant downturn after the U.S. central bank tempered expectations for an aggressive cycle of monetary easing, which was expected to begin in March. However, the current moment is ideal for buying gold, anticipating an inevitable price increase. What arguments have analysts presented?


TD Securities has taken a long position on the metal at $2035 per ounce, setting a target at $2250 per ounce. To minimize risk, a stop-loss was set at $1910.


The decision was made as the price of gold fell due to the Federal Reserve's reluctance to quickly begin a cycle of interest rate cuts in the United States.



"We want to see more evidence that inflation is persistently falling to 2%. Our confidence is growing. We just want a little more confidence before we take this very important step of starting to lower interest rates," said Jerome Powell, Chairman of the Fed.


Analysts emphasizes the intricate relationship between expectations for interest rates and the gold market situation. According to Daniel Ghali, senior commodity strategist, the gold market is not so much concerned with the timing of rate cuts as it is with the cumulative impact of easing over the next year.


He expects the Fed to make four to five interest rate cuts within the year, which could stimulate the gold market, attracting new investors.


Assumptions take into account several factors that could support gold prices. Among them is the current positioning of macro-investors, who historically have not been prepared for a cycle of rate cuts, as well as the potential influx of new investors.



Additionally, strong demand from China and stable purchasing activity in the physical market are cited as key support elements for gold.


Overall, the risk seems to tilt in favor of gold, with potential interest rate cuts creating positive conditions for price growth. Analysts assume an average gold price of $2019 per ounce, with a peak in the second quarter of 2024.



"The January employment report in the USA exceeded expectations, with nearly double the job growth and a sharp increase in wages. This caused the price of gold to drop to $2030 from around $2060 previously. We suspect that strong data will lead to greater pressure on gold sales. Therefore, it would not be surprising if the trend of the yellow metal fell towards support at $2005–2014," the report reads.


"Nevertheless, we still expect the Fed to cut interest rates in May (which dispels hopes for an earlier rate cut in March for the markets), and with a strong central bank and physical purchases in Asia, prices should rebound. Therefore, we remain satisfied with our forecast of $2200 for the next quarter," the analysts added.


06.02.2024



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