The gold market held ground above $1,700 an ounce ahead of the Federal Reserve's monetary policy decision this week. Although gold prices have shown resilience in the face of challenging resistance, one market analyst believes that in the long run, gold prices are likely to fall further.
While gold has struggled in recent weeks, it has been encouraging in gold's traditionally seasonally low season, Suki Cooper, precious metals analyst at Standard Chartered, said in a report on Friday.
Gold prices may have room to rise in the near term following the Federal Reserve's monetary policy decision, she added. Markets are now pricing in a 75 basis point rate hike on Wednesday. CME's FedWatch Tool puts the odds of a 100 basis point rate hike at 24%.
"Given the extent of the recent decline in gold prices, we think the gold market is also expecting a 75bps rate hike at the July meeting, and a 100bps rate hike would be a surprise and push prices to the key $1,690 level," she said. / oz. If gold prices fall below this level, gold prices will face significant downside risks, and a 75 basis point rate hike may bring gold prices back up."
However, she added that while gold prices could rise this week, she is not ready to lift the alarm. Further sharp rate hikes for the rest of the year will continue to support the dollar and weigh on gold, she said.
The bank expects gold to average around $1,700 an ounce by the end of the year.
"Gold has remained resilient given the strength of the dollar and has turned to primarily take cues from the dollar," she said. "We expect EUR/USD to break below parity in the third and fourth quarters of 2022, which means gold may struggle to gain access. Meaningful pull."
She also said that despite the long-term challenges, a potential global recession remains a big uncertainty for gold prices. Standard Chartered expects U.S. economic growth to contract in the fourth quarter. Continued high inflation coupled with slowing economic growth will support gold prices even as interest rates rise, she said.
"During a U.S. recession, the gold price response is usually not one-way, but over the past seven recessions, gold has averaged an annualized gain of 15%," she said.