(Kitco News) – Rising inflationary pressures are hitting the gold market. Despite the many criticisms leveled at the precious metal, it continues to have significant support, at least for now, according to some analysts.
Gold ended its second week in negative territory, but entered the weekend well off its lows after holding a key support level at $2,000 an ounce. Gold futures for April contract were trading at $2,025.60 per ounce, down 0.64% from last Friday.
Analysts say gold is struggling as higher-than-expected consumer and producer prices have forced investors to delay the start of the U.S. Federal Reserve’s easing cycle. ing. The market sees only a 10% chance of a rate cut in March. At the same time, the CME FedWatch tool sees only a 33% chance the market will move in May. But expectations remain strong that the U.S. central bank could start cutting interest rates in June.
Ole Hansen, head of commodity strategy at Saxo Bank, said gold could come under further selling pressure in the short term, but remained bullish in the long term.
“As we have emphasized several times in recent months, [gold and silver] The stalemate is likely to continue until there is a better understanding of the U.S.’s future interest rate cuts. “Until the first rate cuts take place, the market may sometimes get ahead of the curve and in the process raise expectations for rate cuts to a point where they are susceptible to price corrections,” he said.
However, Hansen added that despite the risk of price declines, strong physical demand in Asia should continue to support gold until investors buy into higher prices.
“Gold will struggle in the short term as interest rate cut expectations recede. But overall, I look forward to seeing how Chinese investors react to the slight decline in prices next week. “We believe that instead of physical demand coming from banks and retail investors, there will be physical demand from central banks and retail investors. At least in China, it will continue to provide a soft floor below the market.” added.
Barbara Lambrecht, a commodity analyst at Commerzbank, said the market remains locked in a tug-of-war between investors expecting the Fed to cut rates and investors hoping for interest rates to rise, so it’s likely that gold will remain weak in the short term. He said that he does not expect to see any major movement in the future. It’s longer.
“The market is already very cautious about key rates, and the chances of further adjustments are quite small. After all, we still expect cuts in key rates this year,” he said.
The market will be closed on Monday for President’s Day. With market balance at stake, analysts said investors will pay close attention to the minutes of the Federal Reserve’s January monetary policy meeting. Gold could be sensitive to the central bank’s comments on the timing of its first rate cut.
Silver is a remarkable metal
Julia Cordova, founder of CordovaTrades and author of the weekly newsletter The MoneyMaker, said she believes silver has more potential.
“It looks like Silver was on base,” she said. “Silver will rise dramatically over gold next week.”
Michele Schneider, director of trading education and research at Market Gage, said she is also focused on silver and is completely neutral on gold.
“I pretty much ignore gold until the price drops to $1,920 an ounce or goes above $2,100,” she said.
Schneider said silver is well-positioned to benefit from higher inflation due to strong industrial demand.
“We’re facing inflation that the Fed isn’t necessarily ready for or likely to be able to control without killing gold,” he said. No one would fly to silver as a safe flight unless they were worried about inflation. We may need to worry about inflation at this point. ”
The bullish call for silver comes as the price managed to hold the key support at $22 per ounce and is coming off a week that tested the first resistance level at $23.50 per ounce. Silver prices ended the week up 7% from their lows.
This week’s economic data
Wednesday: FOMC Minutes
Thursday: U.S. PMI news, weekly unemployment insurance claims, U.S. used home sales
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