(Kitco News) - Gold started the week pushing solidly through $1,650 an ounce, but momentum vanished by week's end.
The price of gold is looking to end the week down 0.7% as rumors that the Federal Reserve will signal next week that it is ready to slow its aggressive monetary policy rate hikes. The hope remains as intangible as puffs of smoke.
We have seen this pattern play out through most of the summer as investors have been caught chasing the elusive "Fed pivot."
Although sentiment in the gold market is slightly bullish there is not much conviction in the marketplace. The Federal Reserve's monetary policy decision continues to dominate gold's price action and right now nobody wants to make a bet one way or another.
"Speculators and investors are likely to remain mostly side-lined until we get a clearer view on the thinking within the Federal Reserve, hence the importance of next week's FOMC meeting," said Ole Hansen, head of commodity strategy at Saxo Bank in a report Friday.
Although a shift in the Federal Reserve's monetary policy remains elusive, the expectation the aggressive action is nearing an end was made a little more tangible after the Bank of Canada this passed week eased less than expected. The BoC made a surprising move, raising interest rates by only 50 basis points instead of 75.
The "dovish rate hike" came as the central bank slashed its growth forecasts as recession fears continue to grow.
However, the difference between the Canada and the U.S. is that the economy south of the 49th parallel is a lot more resilient. The initial reading of U.S. Gross Domestic Product for the third quarter shows the economy growing by 2.6%. According to consensus forecasts, economists were expecting to see an increase of 2.4%. The increase in activity comes after two negative readings of -1.6% and -0.6% in Q1 and Q2, respectively.
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| World Bank sees gold prices falling another 4% in 2023 |
At the same time data from Friday shows that higher inflation remains a persistent threat. U.S. core Personal Consumption Expenditures price index increased 5.1% for the year in September, well above the Fed's target of 2%.
Instead of trying to catch the elusive pivot, many analysts are recommending that investors look at gold as a long-term investment and safe-haven asset. In a recent interview with Axel Merk, chief investment officer and president of Merk Investments, said that the Federal Reserve will continue to raise interest rates until something breaks and that is when you want to hold some gold.
As to where that breaking point is, many economists, including Merk see a recession as inevitable.
While gold remains an attractive safe-haven asset, it is not without its competition. Analysts at Bank of America noted that Bitcoin is seeing a growing correlation with the precious metal.
"A decelerating positive correlation with SPX/QQQ and a rapidly rising correlation with XAU [gold] indicate that investors may view bitcoin as a relative safe haven as macro uncertainty continues and a market bottom remains to be seen," said BofA's crypto and digital assets strategists Alkesh Shah and Andrew Moss.
Have a great weekend
