The price of gold has soared 17.7% in the past three months, and has risen by more than 5% since 2023. Hedge funds have recently increased their bullish bets on gold.
After the continuous surge, analysts warned that in the short term, attention should be paid to the impact of this week's Fed rate decision on gold's recent gains.
The market currently generally expects that the Federal Reserve will raise interest rates by 25 basis points this week, but there are still some differences in the Fed's future attitude.
On the one hand, the Fed may strengthen the maintenance of interest rates above 5% for a longer period of time to better control inflation. On the other hand, the market also expects that the Fed may send a signal to the outside world that it will stop raising interest rates in May.
However, in any case, analysts believe that the long-term upward trend of gold this year has been determined.
Hedge funds ramp up bullish bets on gold
The latest trading data from the Commodity Futures Trading Commission showed that in the week ended Jan. 24, hedge funds increased their long positions in gold and reduced their short positions for the eighth straight week.
Fund managers' total long position in COMEX gold futures increased by 7,279 contracts to 131,501 contracts, while short positions fell by 3,223 contracts to 51,622 contracts.
Meanwhile, the gold market is currently 79,879 net long contracts, maintaining a nine-month high.
In addition, the "Global Gold Demand Trends Report" released by the World Gold Council on January 31 also showed that global gold demand in 2022 will increase by 18% year-on-year, the highest annual total demand since 2011, and global central bank gold demand has climbed to 1967. highest level ever.
During the Asia-Pacific trading session on Wednesday (February 1), spot gold traded around $1,927 an ounce.
Overnight, gold prices bottomed out and rebounded. Last week’s U.S. GDP data for the fourth quarter of 2022 strengthened “hawkish” expectations. Coupled with month-end position adjustment factors, the U.S. dollar index rebounded to near a two-week high on Tuesday, while gold prices once fell to Near the 1900 integer mark, but the increase in labor costs in the United States in the fourth quarter of 2022 was lower than expected, which made the "doves" expect to pick up later, helping the price of gold to turn from a decline to an increase, closing at around US$1,928 an ounce.
If the Fed releases the "hawk", the price of gold may drop to $1,900
Despite the strong technical bullish momentum in gold prices, analysts continue to warn investors that the price of gold hit a nine-month high resistance level and is ripe for a pullback, especially if the Federal Reserve puts a "hawk" this week, gold prices can easily pull back.
Currently, the market generally expects the Fed to raise interest rates by 25 basis points this time, bringing the federal funds rate to 4.5%~4.75%.
The latest article by Nick Timiraos, known as the "Fed microphone", also said that the Fed is preparing to slow down the pace of interest rate hikes to 25 basis points in a row, but the debate on how much should continue to raise interest rates and how long to keep interest rates at a higher level will still be debated. continue.
So far this year, gold investors have bought 2.6 million ounces of gold through speculative positions and ETFs, though still below last year's peak of 21 million ounces, Nicky Shiels, director of metals strategy at agency MKS PAMPs, said in a Monday report. , But hedge funds currently hold 16 million ounces of gold and are very sensitive to long resolutions.
"Things are improving, but not quite. During the latest very critical FOMC meeting, there will be a lot of voices, and Powell may depress market expectations and become more hawkish." She said.
Some analysts predict that if the Fed puts a "hawk", gold prices will retest the $1,900 mark.
Adrian Day, chairman and chief executive of Adrian Day Asset Management, an asset management firm, said the market is now so convinced that the Fed will raise interest rates by 25 basis points this week that it even expects the Fed may pause in raising interest rates in March.
As a result, once Fed Chairman Powell takes "hawkish" remarks at the press conference and downplays the idea of pausing interest rate hikes, it may temporarily pull gold back below $1,900 an ounce.
Michael Hewson, chief market analyst at CMC Markets, a trading platform, also predicted in the report that "if there is a hawkish surprise from the Fed, gold prices could fall back towards $1,900 in the short term."
Although the market is worried about "hawkish" surprises, Fed officials have recently released "dovish" signals.
The year-on-year growth rate of PCE in the United States continued to fall in December last year, with a month-on-month increase of 0.1%, and the year-on-year growth rate fell to a one-year low.
Even the big "hawk", Federal Reserve Governor Waller (Christopher Waller) recently suggested that the Fed will pause interest rate hikes in May.
The No. 2 figure of the Federal Reserve and Vice Chairman Brainard also pointed out in his recent speech that the three-month and six-month inflation indicators have declined.
Former U.S. Treasury Secretary Summers also said in his latest speech that due to the high uncertainty of the U.S. economic outlook, the Federal Reserve should avoid signaling its next move after raising interest rates this week.
In addition to the interest rate decision, the market is still waiting for the US non-farm payrolls report for January, which will be released on Friday, and the weakness in the labor market will translate into a decline in inflation.
Phillip Streible, chief market strategist at brokerage Blue Line Futures, warned, "There are so many event-driven risks this week, which may exacerbate gold price volatility, investors must pay attention."
The upward trend of gold this year has been confirmed
However, analysts also generally expect that the rise in gold prices this year has been confirmed.
A Reuters poll of 38 analysts and traders published on Tuesday showed that while higher interest rates are expected to keep a lid on gold prices, analysts and traders have sharply raised their forecasts for gold prices.
Respondents expect gold to average $1,825 an ounce in the first quarter of this year, $1,840 in the second quarter, $1,852.50 for the year, and $1,890 in 2024.
In the survey three months ago, the average forecast price of gold in 2023 by analysts and traders was only $1,712.50.
"We expect the dollar to weaken and bond yields to fall, but gold seems to have priced in most of this risk early on," said Standard Chartered precious metals analyst Cooper (Suki Cooper). Therefore, gold prices may still continue to trade before falling back. up to $2,050.”
In an interview earlier this year, David Neuhauser, founder and chief investment officer of hedge fund Livermore Partners, said gold's recent rally will continue as investors anticipate another round of currency devaluations in the coming years .
“When investors look to the future, they start looking around and thinking about where is the safest place to invest in assets. The only alternative right now is gold, because you know that asset will not depreciate in value,” he said.
In his report at the beginning of the year, Goldman Sachs commodities trader Ryan Voon gave three reasons to boost gold prices this year: first, the previous gold selling trend is coming to an end; , are good for safe-haven assets such as gold; third, affected by geopolitical conflicts, central banks of various countries will prefer neutral assets such as gold.
Ole Hansen, head of commodity strategy at Saxo Bank, even predicted that the price of gold could rise to as high as $3,000 an ounce within this year.
He analyzed that, on the one hand, gold prices in 2023 will be supported by economic recession and stock market valuation risks. These factors will support gold prices.
On the other hand, the de-dollarization trend by some of the world's major central banks looks set to continue on top of last year's record levels of gold purchases, providing a soft floor for the gold market.