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(Kitco News) – Gold market holds steady above $1,700 an ounce ahead of this week’s Federal Reserve monetary policy decision. While the precious metal has been resilient in the face of challenging headwinds, one market analyst sees the potential for further declines in the longer term.
Although gold has suffered in recent weeks, price action has been encouraging in a seasonal slow period for the precious metal, said Suki Cooper, precious metals analyst at Standard Chartered, in a report published on Friday.
She added that gold prices may have room to rise in the near term after the Federal Reserve’s monetary policy decision. Markets are currently expecting to see a 75 basis point rise on Wednesday. CME’s FedWatch tool shows a 24% chance of a 100 basis point move.
“Given the extent to which gold prices have fallen in recent sessions, we believe that the gold market is also priced up 75 basis points at the July meeting and that a 100 basis point rise would come as a surprise and put pressure on prices below the key level of $1,690 per ounce. She said if prices exceed this level, gold will experience a significant decline, while a rise of 75 basis points could see a recovery in gold.
However, Cooper added that although gold prices may rise this week, she is not ready to give an opinion. She said further sharp interest rate hikes over the rest of the year will continue to support the US dollar and weigh on gold.
The bank is looking to average gold prices around $1,700 an ounce by the end of the year.
She said, “Gold remained resilient due to the strength of the US dollar and turned to take a cue from the dollar primarily. We expect EURUSD to trade below par in Q3 2022 and Q4, indicating that gold is likely to struggle to gain significant traction. significance”.
Despite the long-term challenges, Cooper also said that a potential global recession remains a great alternative card to the precious metal. Standard Chartered is looking forward to a contraction in US economic growth in the fourth quarter. Continuing high inflation combined with lower growth will support gold prices, even in the face of higher interest rates, Cooper said.
“Gold price response during recession in the US is not usually one-way, but on average, prices have risen 15% year over year over the past seven recessions,” she said.
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