The U.S. economy continues to lose momentum and the threat of recession continues to grow. However, according to a precious metals company,The Fed will continue to tighten monetary policy, which could keep gold prices low for longer。
Although gold has rebounded from a near two-year low, it is still stuck at around $1,700 an ounce. Gold futures for December delivery were last at $1,686.10 an ounce, up 0.66% on the day.
Commodity analysts at Heraeus Precious Metals warned investors in their latest precious metals report,Gold markets likely to remain subdued into year-end as rising rates support dollar。
Analysts at the European precious metals firm said: “The longer the Fed goes on its current path, the longer a strong dollar will weigh on gold prices。”
Another reason for the price of gold to be depressed is that the market has been pushing out any possible changes in U.S. monetary policy. Markets do not see the Fed turning around in terms of rate hikes until the end of 2023. Markets have all but priced in a 75 basis point rate hike next month, according to the CME Fed Watch tool.
“The Fed is well behind the curve in fighting inflation, which remains well above its 2 percent target rate,” analysts said in the report. In addition, the supply-side elements of the current inflation crisis cannot be addressed by raising interest rates, which means that Demand-side inflation may need to be contained more forcefully. If the Fed wants to bring inflation down to target, it has to be willing to endure a sharp contraction in manufacturing. The last time this was done was in the early 1980s. “
Although U.S. economic activity is slowing, Heraeus noted that the labor market remains fairly resilient. Last week, the U.S. Bureau of Labor Statistics reported that 263,000 jobs were added in September, easily beating expectations. Meanwhile, the unemployment rate fell to pre-pandemic lows. “The unemployment rate at 3.5% remains historically low, suggesting that the job market continues to be strong and the economy can afford further rate hikes,” the analysts said.
According to Heraeus,Fed’s monetary policy shift remains key to gold’s eventual rally。
Analysts said: “Once the U.S. economic slowdown forces the Federal Reserve to adjust its policy, the dollar is expected to start to depreciate, pushing up gold prices.The longer the Fed goes on its current path, the longer a strong dollar will weigh on gold prices。”
A narrowing of the global monetary policy gap will also support the dollar as the Fed eventually turns, Heraeus added. Analysts said the European Central Bank may tighten monetary policy after the Federal Reserve begins to ease monetary policy.
“If the Fed stops raising interest rates before the ECB, the euro is expected to appreciate against the dollar, which could lead to a rise in the dollar price, outperforming euro-denominated gold,” the analysts said.
At 11:52 on October 12, Beijing time, it was reported at $1,664.86 per ounce.