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Limited risk of gold price falling below $1,700, according to Standard Chartered

(Kitco News) Gold is unsure now as prices head toward $1,700 an ounce, but further declines are limited, Standard Chartered said.

The US dollar has dealt a heavy blow to the gold price over the summer, forcing gold to close out August with its fifth monthly loss. The US Federal Reserve’s aggressive rhetoric also sent the US dollar index trading near his 20-year high, while gold futures fell below $1,800 an ounce in December, last traded at $1,722.50.

But the good news for gold is that most of the downside risks are already priced in, so it’s unlikely to fall further, said Suki Cooper, a precious metals analyst at Standard Chartered.

“Yellow metals face significant downside risks, but are also benefiting from tailwinds such as recession risks, price-responsive physical markets, already contracted positioning and rising inflation.” Cooper wrote in this week’s report. “Possible further rate hikes are curbing investor appetite. We expect gold prices to trend lower towards $1,700 an ounce in Q4 2022, but these factors are on the downside. is likely to reduce

Looking ahead, Standard Chartered sees the Federal Reserve gaining just 50 basis points at its next September meeting and pausing at its November and December meetings. This is a slightly more dovish outlook than the market expected, with the CME FedWatch tool estimating he has a 70.5% chance of a 75 basis point rate hike in September.

“Our economists believe that the US economy is likely to lose momentum in the fourth quarter of 2022, so the Fed will pause and US inflation will begin to ease, albeit still elevated,” Cooper said. “Fears about slowing growth and heightened risks of recession should soften the declines in gold. For now, gold has mostly taken its cue from the US dollar, with a three-month rolling correlation of -58. %is.”

In the short term, gold prices will get direction from macro data, especially the jobs report out on September 2nd.

“Nonfarm payroll growth is expected to slow to about 275,000 (from 528,000 in July) and average hourly earnings (AHE) growth is expected to slow to 0.3% month-on-month (from 0.5%), but unemployment We expect the rate to remain at 3.5%,” Cooper noted.

Investor exposure to ETFs, on the other hand, has shown less commitment to gold as ETF holders have reduced their exposure over the past four months after the largest inflow in six quarters in Q1. increase.

“While last year’s net redemptions were by long-term gold holders, recent outflows have been dominated by holders who have established positions within the last two years, with recent inflows compared to traditional ETF investors. , suggesting less commitment to gold,” Cooper noted.

Standard Chartered analyzed it further. reduced its exposure by more than 100,000 shares (32.2 million shares). Notably, many holders of gold ETFs have all but eliminated their exposure, suggesting more tactical interest. “


Disclaimer: The views expressed in this article are those of the author and may not reflect the views of the author Kikko Metals Co., Ltd. The author has made every effort to ensure the accuracy of the information provided. However, neither Kitco Metals Inc. nor the authors can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation of an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the authors of this article accept no liability for loss and/or damage resulting from the use of this publication.

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