With the Federal Reserve at the end of its tightening cycle, the vice-grip that monetary policy has exerted on gold through most of 2023 is starting to weaken, giving the market room to run.
After hitting a seven-month low last Friday, the precious metal is seeing its best weekly gains since mid-March. Prices are over $90 higher than last week's closing price, wth December gold last trading at $1,941.50 an ounce, and are up more than 6% from last week's lows.
Silver is also seeing a significant shift in fortunes as the precious metal looks to end the week up more than $1 with December silver futures last trading at $22.895 an ounce. Silver is up 9.5% from the sub- $21 lows of last week.
Gold and silver are seeing significant gains heading into the weekend due to rising safe-haven demand as Israel intensifies its war with Hamas. With growing chaos in the Middle East and Russia's ongoing war with Ukraine, analysts said that investors are ensuring they have protection during a weekend when anything could happen.
"It's terrible what is happening, but in moments like these, when there is so much uncertainty, investors will flock to gold," said Joseph Cavatoni, North American market strategist at the World Gold Council. "Gold is doing what it does best."
Adding to the tensions with Russia, the U.S. announced tightened sanctions against Russian crude exports on Friday. As a result, oil prices have moved back to within striking distance of $90 an ounce, and are up nearly 4% on the day.
Some analysts note that rising oil prices, if sustained, could be adding to gold's safe-haven bid as a hedge against stubborn inflation.
Christopher Vecchio, head of futures and forex at Tastylive.com, said that while he expects inflation to be fairly volatile through year-end, it won't be enough to force the Federal Reserve to raise interest rates again.
"The Fed is done. We heard from five Fed members who have said that another rate hike is not necessary. Interest rates have become a secondary factor for gold as investors focus on geopolitical uncertainty," he said. "This is fertile ground for gold to see a swing move higher."
Edward Moya, senior market analyst at OANDA, said that he also sees safe-haven demand driving gold prices higher in the near term.
"Demand for safe-havens is becoming more noticeable given monetary policy is restrictive enough and surging energy prices could easily kill the global outlook," he said in a note. "High inflation and a resilient economy could point to more Fed rate hikes, but it seems the economy is finally starting to slow down. If the peak in rates is in place, gold's rebound should extend."
Although gold and silver are seeing significant gains going into the weekend and sentiment is turning solidly bullish, some analysts have also warned investors to use caution and not to chase the market.
Ole Hansen, head of commodity strategy at Saxo Bank, said that while gold remains well supported by growing safe-haven demand, the price faces challenging resistance at $1,950 an ounce.
Hansen added that he would like to see institutional investors jump back into the ETF market to give gold the legs it needs for another run back to $2,000 an ounce, and then to all-time highs.
Commodity analysts at Capital Economics also noted the lack of ETF demand as futures prices push higher.
"Total gold ETF holdings actually fell on the week, reinforcing our view that markets are waiting to see how the conflict unfolds," the analysts said.
Commodity analysts at Commerzbank are also taking a more cautious stance on gold's rally. Thu Lan Nguyen, head of commodity research at the German bank, pointed out that a weaker U.S. dollar and falling bond yields are adding to the bullish momentum.
However, she also noted that it's still not clear that the Fed is done raising interest rates, and said the threat of higher interest rates for longer will contain gold prices.
"It should be clear by the end of the year that the US Fed will not be raising its key rate any further, which would be good news for gold," Nguyen said in a note Friday. "However, the gold price is only likely to make stronger gains and lastingly exceed the $2,000 per troy ounce mark again once there are clearer signs of US Fed rate cuts, which we do not expect to happen until mid-next year."
Analysts note that while economic data will take a back seat to geopolitical headlines, investors still need to keep an eye on a few important data releases.
The most significant report next week will be the September retail sales numbers. Economists have said that weak consumption will put more focus on slowing economic growth in the U.S., which would make it more challenging for the central bank to raise interest rates next month.
Another important highlight next week will be a speech from Federal Reserve Chair Jerome Powell, who will be speaking at the Economic Club of New York on Thursday.
Source: kitco.com
BDST: 1412 HRS, OCT 14, 2023
SMS
