3 Analysts: Wait For These Levels For Gold Prices Now!

 

Rapidly rising energy prices raise inflation expectations, but gold prices continue to be sluggish. Although inflation expectations have risen to critical levels due to the rapid rise in energy prices, the fact that the precious metal cannot rise above the level of 1750 dollars is starting to increase the concerns in the gold market.

Gold prices cannot exceed 1750 levels

A perfect storm of rising demand and the ongoing global supply crisis are pushing energy prices to multi-year highs. Europe, in particular, feels pressure as gas and oil prices reach record levels. Carsten Fritsch, energy and precious metals analyst at Commerzbank, said: “The energy price crisis continues to escalate as gas prices skyrocket. “The price has more than doubled in four weeks,” he said.

Energy prices now feed inflation expectations. The US 10-year break-even inflation rate has been rising steadily, reaching 2.46%. However, analysts say that gold has not benefited much from the increasing inflation pressures as bond yields rise repeatedly and increase real yields. On Wednesday, the 10-year bond yield rose to 1.57%, a three-month high.

Ole Hansen, head of commodities strategy at Saxo Bank, said he was concerned and disappointed by the sluggish performance of gold amid rising inflation pressures. In an email comment to Kitco News, he says:

I'm not sure if it's due to cryptos doing the job instead, but the lack of response to both the growing shortage of risk in equities and rising energy prices is a concern. It will be interesting to see what level the breakeven points need to reach before gold starts to attract some buyers. For now, gold basically needs a higher breakout to attract renewed momentum buying, and so far, the minimum level that needs to be broken for this to happen is $1,766 on the 21-day ma.

Why is the interest in gold weak?

Some analysts point out that a key factor in why interest in gold remains weak is that rising inflation has fueled expectations that the Federal Reserve could tighten monetary policy faster than expected. Investors are already bracing themselves for the US central bank to cut monthly bond purchases before the end of the year. Last month, the Federal Reserve signaled that it could start raising interest rates by December 2022. Growth in the US labor market has been the target the Federal Reserve pursued as it prepared to change its monetary policy. Currently, economists expect 490,000 jobs to be created in September.

Han Tan, chief market analyst at Exinity Group, said that although rising inflation supports gold, the market may see lower prices as the expectation of tighter monetary policy weighs on the market. Tan says:

Gold prices are falling as markets become accustomed to rising expectations of the Fed's contraction, which boosts the dollar and US real yields. If Friday's NFP beats market expectations, then we could see spot gold break for a month. Retest the date range and September lows near $1,720. While fears of stagflation and demand for physical bullion may offer support for the precious metal, a stronger bottom could only come around the $1,670 region, which was well off in the first quarter. That means more downside for gold. It will be held with further advances in Treasury yields and US dollars.