The US Federal Reserve (Fed) has started a two-day monetary policy meeting and will announce decisions related to interest rates this afternoon (July 26). However, most analysts firmly predict that interest rates will be 25 basis points higher.
For many commodity analysts, the question holding gold back is: Will this be the Federal Reserve's last rate hike in its most intense tightening cycle in 40 years? ?
According to the CME FedWatch Tool, the market sees only a 20% chance of rate hikes in September. At the same time, markets see an almost 56% chance of holding rates between 5.25% and 5.50%. until the end of this year.
For many commodity analysts, the question holding gold back is: Will this be the Federal Reserve's last rate hike in its most intense tightening cycle in 40 years? ?
According to the CME FedWatch Tool, the market sees only a 20% chance of rate hikes in September. At the same time, markets see an almost 56% chance of holding rates between 5.25% and 5.50%. until the end of this year.
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Some economists and analysts have said that falling inflationary pressures provide an opportunity for the Federal Reserve to pause raising interest rates. Last week, the US Bureau of Labor Statistics said the country's Consumer Price Index (CPI) rose 3.0% year-on-year last month, the smallest increase in more than two years. At the same time, core inflation also cooled more than expected, increasing 4.8% on the year in June.
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Market expectations for the Fed to end the tightening cycle are at odds with the central bank's predictions. Last month, economic forecasts showed the committee was looking for two more rate hikes this year.
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Some analysts think that the gap between the Fed's forecast and market expectations could affect gold prices in the near term as the tightening cycle is not over yet.
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“There is a very high probability that the Fed will decline if you are among those who think this week’s rate hike will be the last hike of the day,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. . this tightening cycle in the US”.
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Hong Kong stocks rose more than 4% after China pledged to support the property market.
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According to Kitco, gold prices are under pressure in the short term due to the Fed's interest rate hikes. However, in the long term, precious metals tend to increase thanks to the USD about to reverse its downward trend when the Fed ends the cycle of tightening monetary policy.
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If China's economy grows quickly again thanks to the policies to support real estate being considered, then the forecast about the decline in demand for gold consumption of this country may no longer be true. Gold then had another bullish support factor.
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The gold market remains resilient as it continues to hold solid support above $1,950 an ounce even as the US Federal Reserve unleashes its strongest tightening cycle in more than 40 years.
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Many forecast the Fed will increase interest rates by 0.25%. Meanwhile, the US survey announced that the consumer confidence index in July was at 117 points, up from 110.1 points in June, and surpassed expectations at 112.1 points. . This is also the highest consumer confidence in the US within 2 years.
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The China Gold Association (CGA) has just announced that China has seen a slight growth in gold production and a sharp increase in gold consumption in the first half of 2023.
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The People's Bank of China (PBoC) has also increased its gold purchases in 2023 when it bought 21 tons of gold in June. This is the eighth consecutive month of buying, totaling 165 tons, total gold reserves now amount to 2,113 tons. .
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Over the past few months, analysts have noted that China's demand for gold is part of a strategy to give the yuan more international credibility. At the same time, the Chinese purchase is part of a significant global de-dollarization theme.
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Ralph Aldis, Senior Gold Portfolio Manager at U.S. Global Investors said that China does not want to hold the dollar for trading because it has reached a number of trade agreements with major suppliers of commodities ranging from pulp to oil around the world that are designated to trade. and payment in RMB. China's new gold buying spree has just begun. China has the fifth largest gold reserves in the world.
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The gold market remains resilient as it continues to maintain solid support above $1,950 an ounce even as the US Federal Reserve unleashes its strongest tightening cycle in more than 40 years.
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Land said that, whether this should be the last rate hike or not, the Fed is clearly nearing the end of its game. Although US economic growth is relatively stable in the first half of 2023, the expert noted that it will take time for the economy to feel the impact of monetary policies from the central bank.
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He added that it is not surprising that investment demand in gold has slowed for most of 2023 as a strong economy has supported the stock market. In the current environment, a small change in investor demand will be enough to push prices back to $2,000 an ounce.
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Nicky Shiels, metals strategist at MKS PAMP, said she sees potential in gold because of the Fed's inability to support the dollar's monetary policy.
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However, if the price falls back below the 50-day moving average around $1,947 per ounce, bears could target $1,940 and $1,932 an ounce.
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Many analysts also recommend investors ignore the short-term volatility of gold and focus on the limit scene. While usage has fallen sharply from a 40-year high on record in several years, the Fed is unlikely to bring it back to the 2% standard. Experts emphasized that gold is still an attractive delay prevention tool.
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However, the scarcity of supply could push commodity prices higher and the Fed is unlikely to achieve its target of bringing inflation to 2%.
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In an interview with Kitco News, Steve Land, portfolio manager at Franklin Templeton's Franklin Gold and Precious Metals Fund, said renewed investor demand was key to gold pushing back against record highs across the world. $2,000/ounce.
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The US dollar and US Treasury yields rose to two-week highs, making bullion more expensive for buyers currently holding other currencies.
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After Wednesday's widely anticipated 25 basis point hike, there's about a 60 percent chance the Fed will keep rates unchanged through 2024, according to the CME FedWatch tool.
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Euro-denominated gold hit a one-month high earlier in the session on hopes that economic stimulus from top Chinese bullion buyers could boost demand.
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Gold consumption by key buyers grew 16% year-on-year in the first half of 2023, with jewelry consumption up nearly 15%.
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“After four days of declines, I suspect gold will hold above $1,950 an ounce and attempt a drop to $1,960 to $1,965 an ounce based on that,” said Matt Simpson, senior market analyst at City Index. on technology today”.
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According to Reuters, gold prices rose as the dollar and bond yields fell ahead of the Fed rate hike news and Chairman Jerome Powell's comments.
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Tim Waterer, head of market analysis at KCM Trade, said: “If Chairman Powell suggests that interest rates may have peaked, this would signal good news for prices. Gold has rallied in recent weeks.”
