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The gold market ended a five -week -old defeat and while the sentiment seemed to shift, some analysts said that precious metals still faced a challenging environment next week.
August Gold Futures searched to end the week with an increase of more than 1%, the latest trading at $ 1,721.40 per ounce.
All eyes will be focused on the federal reserve next week because the market expects the U.S. Central Bank. To raise interest rates with 75 other base points. Some currency analysts say that while the US dollar has fallen from the highest of the last 20 years, the aggressive attitude of the Federal Reserve will continue to support Greenback.
“In the midst of Hawkish Fed’s background and slowing global growth, we think the dollar will continue its extensive strength before a long time,” economists said at Capital Economics in a Friday report.
Marc Chandler, Director of Implementing at Bannockburn Global Forex, said that while the price of gold has space to move higher next week, the central bank’s decision can limit profits.
“Not only The Fed will most likely climb 75 basis points, but will also indicate it is not done with adjustments. I imagine gold will fight close to $ 1750 and on average move 20 days right up there [$ 1,752],” he said .
However, some analysts see the federal reserve tightening cycle has a smaller impact on the US dollar and financial markets. Currency Analyst in T.D. Securities see the decision on Wednesday as a more neutral for greenback because the market has been valued in many hawkishness.
“This meeting brought a much less weight than the last two and the blades seem high to drastically shift the landscape at F.X. Higher than this meeting,” the analysts said.
The price of gold increased due to concerns that global recession rearranges the level of expectations for all major central banks. Gold began to act like a safe place because of the weakening of economic growth will force many central banks to leave their aggressive tightening plans, “said.” Edward Moya, Senior Market Analyst in Oanda. “Gold may find resistance at the $ 1750 level, but if not, not much will prevent up to the level of $ 1800.”
Friday, the initial data from the S&P Global Market Intelligence shows that activities in the manufacturing sector and US services dropped to the lowest level in two years. Decreased activity reflects the same weakness in Europe.
The market feels that the level of climbing cycle will end faster because of slowing growth. FRIDAY SERVICE, PMI is very soft and means that FED will stop around 3% and is likely to be cut in 2023. When the cutting is really visible at view , Gold will surge in the weakness of the USD, “said Adam Button, head of currency strategy at forexlive.com.
Thursday, the market will be anxiously waiting to see if the US has fallen into a technical recession after the first reading of the second quarter GDP. Many economists have rejected the weaknesses of the first quarter as a trade imbalance; However, data from the Atlanta Federal Reserve, shows GDP contracted 1.6%, matching the decline in the first quarter. The traditional definition of a recession is two quarters of successive decline.
Last week Bank of America said that they saw the US fall into a light recession at the end of the year
Other European crisis
Along with the federal reserve monetary policy decision, analysts also said that they would witness the ongoing geopolitical uncertainty in Europe. Thursday, Italy fell into political chaos after Prime Minister Mario Draghi resigned after the collapse of the national unity government. This nation is expected to hold a fast election in autumn.
At the same time, economists continue to digest the announcement of the European central bank about transmission protection instruments. This program will be used to buy bonds from members of the Euro zone to ensure all yields are in line and avoid the risk of fragmentation.
John Hathaway, Portfolio Manager of Sprott Hathaway’s special situation strategy, said in an interview with Kitco News, that Europe could be close to the sovereign debt crisis because the central bank continued to expand the balance sheet.
“The price of gold can easily push back up to the highest if there is a crisis in the foreign exchange market,” he said. “The next black Swan out there will be connected to the F.X Market which is difficult to manage.”
Christopher Vecchio, a senior market analyst at dailyfx.com, said he also saw the risk of a greater country debt crisis in Europe. He added that in this environment, both gold and US dollars would benefit.
