Interest rate cuts will eventually return, expectations for gold remain unchanged, and there is still a great opportunity to hit a high point
The primary driver of gold prices at present is still the Federal Reserve's guidance. Last week, the Fed raised interest rates by 25 basis points as expected, bringing the benchmark federal funds rate to a target range of 4.75%-5%, the highest level since September 2007, on the eve of the financial crisis. The Fed's statement removed the phrase "ongoing rate hikes are appropriate," replacing it with "some additional policy firming may be appropriate," which was interpreted as dovish. The dot plot maintained the year-end interest rate expectation at 5.1%, suggesting only one more moderate rate hike. Earlier this month, the banking crisis triggered by Silicon Valley Bank softened the stance of some officials. Fed Chair Powell revealed at a press conference last week that the Fed had considered pausing rate hikes in the days leading up to the March FOMC meeting, but the rate hike was strongly supported by FOMC members due to high inflation. The Fed stated in its statement that the US banking system is healthy and resilient, but warned that numerous failures would drag down economic growth, fueling market bets on rate cuts this year. Regarding spot gold, prices have fluctuated this week following a series of measures taken in response to the banking crisis, still some distance from the 2000 mark. However, the market sentiment suggests high expectations for gold, with a belief that gold prices are gradually rising and still have significant potential to hit higher levels. Economists at Commerzbank believe: "The market seems to have calmed down. Therefore, gold prices have given back some of their gains. However, we believe that gold will not fall back to the $1800 level in the foreseeable future. We estimate that the Fed will raise the federal funds rate by a further 50 basis points in total to 5.25-5.50% in the coming months. However, the decisive factor is that the market may realize that, contrary to current expectations, the Fed will not cut rates this year. Due to the need for market expectation adjustments, we expect gold prices to fall to around $1900 in the coming months. However, once US inflation falls significantly and the real economy feels the impact of sharply higher interest rates more strongly, speculation about rate cuts could return and drive gold prices higher. This should be the case in the second half of the year, which is why we continue to expect gold to rise. We have even raised our year-end forecast from $1950 to $2000." UBS economists stated that gold appears poised to benefit from its safe-haven status amid increased market uncertainty, and that it will take time for investor confidence to fully recover. "Gold has already been rising due to recent market volatility. Spot prices have broken through $2000 per ounce, reaching a 12-month high. Meanwhile, gold exchange-traded funds (ETFs) appear set for their first net inflow in nearly a year in March. Given recent events, we believe there is potential for gold prices to reach $2100 sooner than previously expected (March 2024)."
Time:
2023-04-01 10:46
Current push Gold The main factor driving this is still the Federal Reserve's guidance. Last week, the Fed raised interest rates by 25 basis points as expected, bringing the benchmark federal funds rate to a target range of 4.75%-5%, the highest level since September 2007, on the eve of the financial crisis.
The Fed's statement removed the phrase "further increases in the target range are likely to be appropriate" and replaced it with "some additional policy firming may be appropriate," which was interpreted as dovish. The "dot plot" still maintains the year-end interest rate expectation at 5.1%, suggesting only one more moderate rate hike.
Earlier this month, the banking crisis triggered by Silicon Valley Bank softened the stance of some officials. Fed Chair Powell revealed at a press conference last week that the Fed had considered pausing rate hikes in the days leading up to the March FOMC meeting, but the rate hike was strongly supported by FOMC members because inflation was too high.
The Fed said in its statement that the US banking system is healthy and resilient, but warned that numerous failures would weigh on economic growth, and market bets on rate cuts this year intensified.
Spot gold This week, after a series of measures were taken in response to the banking crisis, spot gold prices have retraced, fluctuating, and still some distance from the 2000 mark. However, from a market trend perspective, expectations for gold are still high, believing that Gold prices are gradually and slowly rising, and there is still a great opportunity to hit a high point.
Economists at Commerzbank believe: "The market seems to have calmed down. Therefore, gold prices have given back some of their gains. However, we believe that gold will not fall back to around $1800 in the foreseeable future. We estimate that the Fed will likely raise the federal funds rate by a total of 50 basis points to 5.25-5.50% in the coming months. However, the decisive factor is that the market may realize that, contrary to current expectations, the Fed will not cut rates this year. Due to the need for market expectation adjustments, we expect gold prices to fall to around $1900 in the coming months. However, once US inflation falls significantly and the real economy feels the impact of sharply higher interest rates more strongly, speculation about rate cuts could return and drive gold prices higher. This should be the case in the second half of the year, which is why we continue to expect gold to rise. We have even raised our year-end forecast from $1950 to $2000." UBS economists said that amid greater market uncertainty, gold appears poised to benefit from its safe-haven status, and it will take time for investor confidence to fully recover. "Due to recent market volatility, gold has been rising. Spot prices have broken through $2000 per ounce, reaching a 12-month high. Meanwhile, gold exchange-traded funds (ETFs) appear set for their first net inflows in nearly a year in March. Given recent events, we believe there is potential for gold prices to reach $2100 sooner than previously expected (March 2024)."
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