Gold could rise again to $2000 next week because of the unabated geopolitical situation, but price volatility will continue, according to analysts.
After hitting a record high last week, gold fell below $1900 at one point and held steady at just under $1930 on Friday. COMEX April gold futures closed down 0.7% at $1929.30 an ounce, down 2.8% this week, the biggest weekly decline since the week of Nov. 26, 2021.
Looking ahead, markets will still face another uncertain weekend on the geopolitical front, with the war in Ukraine still the biggest driver of commodities. "We are watching the situation in Ukraine. Frankly, nothing is more important to the market. This could change the consideration of risk, "said Bart Melek, global head of strategy at TD Securities.
In addition, many gold investors still do not believe the Fed can raise interest rates six more times without significantly slowing the economy.
Although the Fed raised interest rates for the first time since 2018, gold is still trading above $1900.
The March meeting was hawkish, but it did not undermine the positive mood towards gold, "said Suki Cooper, a precious metals analyst at Standard Chartered Bank. "current geopolitical risks have led to fears that inflation could soar further over a longer period of time, rekindling long-term interest in gold."
Cooper noted that investor interest in gold has risen sharply over the past few weeks, which is a big driver of the rise in gold prices. He warned that there could be more volatility in gold prices. "despite the pressure on the spot market, this weakness has been completely offset by increased investor interest, suggesting that price volatility will continue," she said. "
In addition to geopolitical uncertainty, investors are still digesting the Fed's new hawkish stance.
Gold reacted negatively to the Fed's decision, but we saw that gold recovered most of its lost ground after the Fed announced its decision. Despite the hawkish nature of the Fed, the market remains sceptical about whether the Fed will raise interest rates six more times. This is a very aggressive forecast that is not in line with the Fed's 4.3 per cent inflation expectations this year, "said Everett Millman, a precious metals expert at Gainesville Coins.
Any fall in these expectations would be good for the future of gold prices, Millman added. "I am very bullish now. Gold prices have fallen this week, which is very healthy. At the same time, we must guard against more fluctuations. "
In addition, inflation expectations are sure to worsen after US CPI data in February showed inflation at 7.9 per cent, a 40-year high.
"We haven't seen a big rise in food prices yet. The problem is that 60 per cent of CPI stocks are up 5 per cent from a year earlier, "Melek said. "this is no longer short-term inflation. This is overall inflation. Inflation expectations are likely to decouple. In the case of gold, the Fed's commitment has not converged fast enough to contain inflation. This is a favorable environment for gold. "
Mr Melek added that the possibility of gold rising to $2000 could not be ruled out, but the question was whether it could be maintained at that level. Analysts no longer talk about gold falling to $1400. "if the Fed gets too strict, gold will sell off," Melek said. But from a downside point of view, it will be stronger than we thought a month ago. "
Melek pointed out that the downside needs to focus on support levels of $1920 and $1875. The first major resistance in the upward direction is around $1980.
Millman sees $1900 as support and $2000 as resistance. "I wouldn't be surprised if the gold price breaks through $2000 after rising above $1950," he said.
Next week's data will be light, as the market will focus on new home sales next Wednesday and durable goods orders next Thursday, initial jobless claims and manufacturing PMI.
The decline in Boeing aircraft orders will be a drag on durable goods orders. Excluding these factors, the report should be strong, as evidence can be seen in business surveys such as the ISM report. There's still a lot of housing data, which should be fine, "said James Knightley, chief international analyst at ING.
