The cooling of inflationary pressure and the increasingly weak US labor market have led the market to question the Federal Reserve's plan to maintain interest rates in a restrictive range for the foreseeable future, providing new impetus for gold. However, market sentiment is still insufficient to push prices above $2000 per ounce.
Although gold prices ended the week with a strong rise, they have fallen back from Thursday's high. On Friday (November 16th), the latest trading price of spot gold was 1980.65 US dollars per ounce, up more than 2% from last Friday's three week low.
Although analysts remain bullish on the gold market as it enters a seasonally strong point, some argue that new catalysts are needed to achieve the ultimate goal of gold prices reaching historic highs.
Adam Button, chief currency strategist at Forexlive.com, stated that the time is ripe for the gold market to break through $2000 per ounce. However, he added that the market may need to see weak economic data to generate confidence?? Continuous motivation.
He pointed out that inflation has decreased, with the US CPI dropping to 3.2% in the 12 months to October, indicating that the Federal Reserve has room to maintain interest rates unchanged. However, he added that the central bank is not in a hurry to cut rates anytime soon.
He said, "The Federal Reserve will persist for a longer period of time than it actually needs, but this only means they will have to cut interest rates more significantly. I think these expectations are supporting gold prices
Barbara Lambrecht, a commodities analyst at Commerzbank, said that although the Federal Reserve is unlikely to raise interest rates in December, she also does not expect to cut rates soon, which limits the upward potential of gold prices.
The recovery of the gold market is unlikely to continue, "she said. We expect gold prices to continue to exceed the $2000 mark by the middle of next year
Meanwhile, with almost no economic data released next week, investors are unlikely to have an accurate understanding of the health of the US economy. The market will also be closed on Thursday due to the Thanksgiving holiday in the United States.
It's not just interest rates that drive gold growth
Although the aggressive interest rate stance of the Federal Reserve has aroused widespread concern in the market, some analysts said that investors should also pay attention to the balance sheet of the United States as the global financial market is increasingly worried about the size of its debt.
Next week, the US Treasury Department will auction 20-year bonds and 10-year treasury bond inflation protected securities. The two auctions followed last week's disappointing 30-year treasury bond auction.
Analysts point out that as debt continues to grow, the attractiveness of US sovereign debt is decreasing.
Button said, "The US debt crisis is extremely positive for gold, but the US has a lot of leverage to sustain a large amount of debt, so we cannot see a crisis soon
Now is the time for investors to remain patient
Michele Schneider, Director of Trading Education and Research at MarketGauge, said that although gold is not yet ready to break through $2000 per ounce, it does not mean it has lost its luster.
She said investors must remain patient as she expects the market to consolidate. Schneider pointed out that although inflation continues to decline, the economic threat posed by rising consumer prices has only been postponed. The economy is following the same pattern as in the 1970s and 1980s.
The inflation rate rose to 12% in the mid-1970s and then sharply decreased to around 5% by 1977. However, after this trough, the inflation rate surged to 14.5% in mid-1980. The Federal Reserve has stated that this is a situation it is trying to avoid, but Schneider stated that this is unlikely to happen.
Schneider explained that the biggest difference between today and the 1970s is the size of the US debt. She stated that the Federal Reserve is unable to push interest rates up enough to suppress long-term inflationary pressures.
Schneider pointed out that the US debt problem also meant that the government was unable to provide any financial assistance when the economic recession hit.
"Nobody is willing to buy US treasury bond bonds, and the Federal Reserve will be forced to buy these treasury bond," she said. This new quantitative easing policy has pushed gold prices to historic highs. The gold market is just waiting for the Federal Reserve to make monetary policy mistakes
However, Scheinder added that gold prices may not reach historic highs until 2024 or 2025. She said that until then, investors should continue to invest within the gold range.
When gold starts to look bad, you buy it; when it starts to look strong, you sell it. Before a crisis erupts, gold only waits for the opportunity, "she said.
Next week's economic data:
Tuesday: Federal Open Market Committee (FOMC) meeting minutes
Wednesday: Weekly initial claims for unemployment benefits
Friday: PMI initial value
