The gold market has yet to break out of the neutral trading channel around $1,950. But it is well positioned to benefit when sentiment changes, which may be sooner than some expect.
Gold investors are taking a cautious stance for now
Yes, the US managed to avoid recession. Additionally, expectations for a soft landing continue to rise. However, many analysts remain skeptical about whether this optimistic goal can be achieved. According to many analysts, gold’s price action proves that investors are taking a more cautious stance to protect themselves against a downturn.
The position of the gold price becomes even more impressive when looking at the challenges it has faced this week. The Federal Reserve did not raise interest rates on Wednesday. However, cryptokoin.com As you follow from , he continued his hawkish tendency. Federal Reserve Chairman Jerome Powell said the central bank will keep interest rates at restrictive levels for the foreseeable future, even though interest rates are near their peak. Powell added that the central bank’s interest rates are restrictive enough, but they’ll know it when they see it.
Investors should believe what Powell says!
The biggest surprise for many economists from this week’s decision was that the central bank sees only two potential rate cuts next year, after four projected rate cuts in June. This fits into the growing “higher for longer” narrative. The Fed’s stance pushed 10-year bond interest rates to the highest level in the last 15 years, at 4.5%. At the same time, the US dollar index rose above 105 points. Thus, it reached its highest level since November 2022. Commerzbank analysts state that real yields reached 2%, an increase of 50 basis points compared to last month.
Despite all this, gold continues to hold above $1,900, which has become an important psychological level. George Milling-Stanley, chief gold strategist at State Street Global Advisors, says gold remains an important portfolio diversifier as the Fed continues to put pressure on the economy to reduce inflation. In this context, the analyst makes the following statement:
At the beginning of the year, I said that stock markets should be more afraid of the Fed than gold, and I still believe that. Yes, the economy has been very resilient so far this year. However, Powell said on Wednesday that they still need below-trend growth to reduce inflation to the 2% target. Investors should believe Powell when he says this, because he means it.
The shiny metal still has significant growth potential
And it’s not just the Federal Reserve entering the end game. The Swiss National Bank, the Bank of England and the Bank of Japan also left interest rates unchanged this week. Both the SNB and the BOE have said they are close to containing inflation as economic growth begins to weaken. Gold performed well against both currencies following monetary policy decisions.
The gold market lost some momentum as investors sat on the sidelines. However, Milling-Stanley states that there is still significant growth potential in the market.
The future of gold investment is safe
This week, State Street released an update to the gold investor survey it published in June. The updated analysis examined the role financial advisors can play in developing the gold market. 20% of those surveyed say they hold some gold. The report also states that approximately one-third of investors do not invest in gold because they do not have enough information about how to invest in the precious metal. “The main message from analysts is that the future of gold investing looks secure,” Milling-Stanley said. “This is very, very good news,” he says.
Finally, let’s not forget that central bank demand continues to form a solid foundation. World Gold Council analysts reported that the Central Bank of Russia purchased 3 tons of gold last month. He also noted that Russia’s gold reserves have returned to 2022 levels.
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