To The Moon

For most of 2023, the Fed's tight monetary policy has been weighing on the price of gold. However, as the tightening cycle nears its end, dampening effect of interest rate hikes towards the gold price is starting to wane, providing more upside for the gold price, which surged last week.

After hitting a 7-month low on Friday before two weeks, gold prices rose more than $90 last week, the biggest one-week gain since mid-March, with December gold futures prices rising more than 6% to $1,941.50 per ounce from previous week's low two weeks ago. In addition, silver prices also surged last week, with December silver futures prices rising more than $1 to $22.895 per ounce, totaling 9.5%.

Prior to the end of last week, one of the most important catalysts for the surge in gold and silver prices was the escalating conflict between Israel and Hamas driving up safe-haven demand.

Analysts said that, with increasing chaos in the Middle East overlaid on the ongoing Russia-Ukraine conflict, investors were actively seeking protection in a weekend where anything could happen. Joseph Cavatoni, North American market strategist at the World Gold Council (WGC), said the situation is dire and there is a great deal of uncertainty, so investors will flock to gold, which is doing what it does best.

The worse thing is that the U.S. announced that it was tightening sanctions on Russian crude oil exports on Friday. As a result, oil prices rose nearly 4% on the day, approaching $90 per ounce. Some analysts pointed out that if oil prices continue to rise, inflation will be more stubborn, which may further enhance the safe-haven demand for gold.

Christopher Vecchio, head of futures and foreign exchange at Tastylive.com, said that while he predicts that inflation will fluctuate dramatically until the end of the year, it won't be enough to force the Fed to raise rates again. He said the Fed has already closed in and five Fed members have already said there is no need to raise rates again. In addition to geopolitical uncertainty, interest rates are becoming the second most important factor affecting the price of gold, thus creating excellent conditions for the price of gold to continue to move higher.

Edward Moya, senior market analyst at OANDA, said he also believes that safe-haven demand will drive gold prices higher in the near term. Additionally, he said the safe-haven demand is becoming more pronounced given that monetary policy has tightened enough and soaring energy prices may be killing the global economic outlook. The economy seems to be finally starting to slow down. If peak interest rates get established, the rally in gold prices will continue.

Although bullish sentiment towards gold is currently strong, not everyone is bullish. There are still some analysts reminding investors to remain cautious and do not chase the rise.

For example, Saxo Bank's head of commodity strategy Ole Hansen said that, although gold enjoyed great consolidation thanks to the growing demand for safe-haven, the gold price in the line of $1,950 is still facing a lot of resistance. Hansen said that it’s necessary for institutional investors to return to the ETF market to drive the gold price rise to $2,000 again and hit the historical highs. Commodity analysts at Capitol Macro also pointed out that higher gold futures prices also lack the support of ETF demand; and even gold ETF holdings are still down last week.

For this round of rising gold prices, Commerzbank's commodity analysts also take a more cautious stance. Thu Lan Nguyen, head of commodities research at the bank, pointed out that a weaker dollar and falling bond yields have helped boost gold prices, but the signal for the Fed to stop raising interest rates is still unclear. As for a more substantial rise in gold prices or even a sustained breakthrough through the $2,000 round figure mark, there needs to be a clearer signal that the Fed is cutting interest rates. However, they expect this situation will not occur before the middle of next year.

$Gold - main 2312(GCmain)$ $Gold - Oct 2023(GC2310)$ $E-Micro Gold - Oct 2023(MGC2310)$

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