Gold is headed for its fifth consecutive weekly decline and is on track for its longest losing streak in nearly four years.
On Thursday, the spot gold price once fell below US$1,700 per ounce, hitting an 11-month low, close to pre-epidemic levels; as of Friday, it is still down 0.46%, at US$1,702.09 per ounce.
In the past month, the Federal Reserve took a tough stance on raising interest rates to combat high inflation, which pushed the U.S. dollar index to remain at a 20-year high, putting gold prices under pressure.
Investors are concerned about what will happen to the price of gold next?
Daniel Ghali, senior commodity strategist at TD Securities, believes: "A major capitulation event may be taking place in the gold market. Gold investors are falling like dominoes." He pointed out that if gold prices fall below pre-epidemic levels, levels, $1,650-1,700 an ounce, could trigger a larger sell-off.
Craig Erlam, senior market analyst at OANDA, a foreign exchange and futures broker, believes that it is still very possible for gold prices to fall below US$1,700, with the next support level being US$1,680 per ounce.
HSBC also stated in a recent report that the US dollar may continue to maintain a "shining form" that eclipses gold. James Steel, the bank's chief precious metals analyst, said in the report:
" Earlier this year, gold was The Ukraine crisis rallied on geopolitical risks and inflation concerns, but these have now been replaced by the twin headwinds of tighter monetary policy and fiscal tightening, in our view, this 'turn' will put gold on the defensive. .
Inflation concerns have stimulated physical demand for gold bars and coins, but they have not stimulated institutional buying. Investors have increased their holdings of gold ETF, but they are still below the highest point this year, further increasing their holdings. The space looks limited.
However, a pullback in gold prices may stimulate demand in price-sensitive emerging markets. We maintain our forecast of spot gold prices averaging US$1,820/oz in 2022, US$1,750/oz in 2024. It is US$1,675 per ounce in the year and US$1,600 per ounce in the long term.”
HSBC: Gold prices will be below US$1,800 in the second half of the year and may fall below US$1,700
HSBC believes that rapidly rising inflation and inflation expectations will have a good impact on gold. There are bad ones, but overall the impact is negative.
As a hard asset , rapidly rising inflation and inflation expectations may be intuitively beneficial to gold, but it has also intensified expectations that the Federal Reserve will continue to tighten monetary policy. Other central banks are also taking or may take similar measures. policy.
With the rise in U.S. bond yields, the Federal Reserve's quantitative tightening, and the end of large-scale fiscal spending in most economies, these factors combined are not conducive to the continued rise in gold prices.
The price of gold is very sensitive to real interest rates, especially the 10-year U.S. Treasury real interest rate. The two have an almost perfect negative correlation. "In 2021, a rise in longer-term real yields reversed gold's long-term rally. Over time, U.S. real yields may matter more to gold prices than any other financial market factor. "
Controlling fiscal spending would also be bad for gold. The report reads:
"Historically, gold has tended to respond positively to loose monetary policy , fiscal expansion and rising debt levels, as all of these can trigger inflation...
Since the epidemic, The global debt/GDP ratio continues to rise. As spending declines and taxes rise, the U.S. federal budget deficit is likely to fall from 12.4% of GDP in fiscal 2021 to below 3% in fiscal 2022. This is also true globally. The impact of this trend on the gold market is not always obvious, but it should have an adverse impact on gold. "
Regarding the trend of the U.S. dollar, the HSBC foreign exchange team believed in a report on June 9 that although the U.S. dollar continued to decline in May. A pause in strength, but there are still good reasons for continued dollar strength.
" A slowdown in U.S. economic growth will sooner or later affect the rest of the world, and the dollar has historically responded favorably to cyclical downturns and is likely to do so again this time. The dollar may be overvalued, but it is not Evidence suggests it has already peaked, so this overestimation is likely to persist...
While the Fed's continued tightening of monetary policy may pose downside risks to global growth, there is an old saying that 'when the U.S. economy sneezes, the rest of the world "The region just has a cold," which could be bad for the dollar, but it's also bad for gold. HSBC expects these factors to keep gold on the defensive for the rest of the year and 2023, and for the rest of 2022, gold prices will be on the defensive. It remains below $1,800/oz and could fall below $1,700/oz levels.
However, HSBC believes that the decline in gold prices will be mitigated to a certain extent.
The bank believes that geopolitical risks (such as the Ukraine conflict ) are unlikely to subside in the short term, and expects them to become a potential source of support for gold in the near term. In addition, further significant declines in gold prices, such as near or below $1,700 per ounce, may also trigger demand in price-sensitive emerging markets.
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