Gold is likely to track shifting market expectations around the Fed tightening in the short term, according to strategists at ANZ Bank.
USD is likely to weaken in the second half of 2023
“The Gold market remains vulnerable to market expectations around the Fed’s monetary policy. Strong economic data from the US with sticky inflation raise the risk of more rate hikes; this is likely to be a headwind in the short term.”
“Nevertheless, we see limited upside in the USD, which is a tailwind for gold prices. Even with higher terminal rates, the USD is likely to weaken in H2 2023.”
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Gold’s rally is beginning to show signs of exhaustion as the recent uptick in US Dollar (USD) and US Treasury yields has taken XAU/USD back to key resistance around the $1800 region.
The price of gold is expected to struggle near-term as the Federal Reserve (Fed) remains hawkish, according to analysts at ANZ.
In their latest views on gold, Stephen Jones and Edward Wilson at ANZ noted that the metal looks increasingly vulnerable near-term. The analysts argued that if safe-haven buying abates, gold prices could quickly retreat.
ANZ analysts believe this is particularly the case if Treasury yields continue to rise.
“US 10-year Treasury yields broke 3.2% – intra-day. Expect this support level to remain key for direction,” the analysts stated.
The Fed is set to remain hawkish and Jerome Powell, the Fed chairman, stated last week that it was important to remember that a far away from ‘neutral rate’ should not be misconstrued as a series of tighter policy actions.
The US-China trade deal and Brexit negotiations are also making progress which has resulted in US Dollar strength, Jones and Wilson noted.
“Dollar strength is likely to remain a key feature holding back gold’s rally. Tone of the trade news will be key – Trump demonstrated that he doesn’t settle for half-measures when it comes to tariffs. Any reservations cast on the trade deal could result in equity markets re-adjusting,” they explained.
As a result, ANZ analysts believe that gold could struggle with further potential near-term. XAU/USD is expected to look for support at the $1735 region.
“Price action will be key, our focus will be on the relative performance of the US Dollar and equity markets post any comment from Trump,” Jones and Wilson concluded.
As the outlook remains negative near-term, gold traders should watch for key levels of resistance and use any opportunities to take profits and potentially short the metal.