Gold prices are under pressure ahead of the Federal Reserve's interest rate decision, with the $4,000 mark once again becoming the market's focal point.
JPMorgan Private Bank has warned that gold will struggle to form a genuine bottom before interest rates peak, and that there is almost no technical support below $4,000, leaving the market still "quite fragile."
As the market focuses on tonight's FOMC decision, spot gold fluctuated and declined during Wednesday's session, falling as much as 0.8% intraday and erasing most of the previous trading day's gains.
Yuxuan Tang, Head of Asia Rates and FX Strategy at JPMorgan Private Bank, said, "Gold prices will find a solid bottom when interest rates peak (the endpoint of the Fed's current hiking cycle)," noting that thin liquidity and room for further rate increases are the main downside risks currently facing gold prices.
The Fed is expected to hold steady this week, but traders have already priced in the possibility of a rate hike within the year, capping gold's upside potential.
Fed Chairman Kevin Warsh faces a dilemma — he must both reassure the market's confidence in fighting inflation and address the pressure from persistently high energy prices.
Notably, stubbornly elevated energy prices are the primary driver of current inflation, and Thursday's PCE data will further clarify the inflation trajectory and interest rate outlook.
JPMorgan: Fragile Market, Scarce Support Below $4,000
Yuxuan Tang, Head of Asia Rates and FX Strategy at JPMorgan Private Bank, holds a cautious view on gold's prospects.
He pointed out that gold faces downside risks after the recent sell-off, due to still-thin liquidity and room for interest rates to rise further.
"Gold prices will find a solid bottom when interest rates peak," Tang said, adding that the market is currently "quite fragile" with almost no technical support below $4,000 per ounce.
Gold prices have recently briefly fallen below the $4,000 mark.
Last week, AI-related stocks suffered a sell-off, forcing investors to sell gold to cover losses in other assets, with gold prices briefly dropping to their lowest level since mid-July.
Since then, tech stocks have rebounded along with renewed enthusiasm for AI trades, somewhat easing gold's decline.
Despite weak technical support, physical buying and bargain-hunting capital have to some extent prevented gold prices from falling further.
Chinese households' willingness to purchase gold has continued to rise over the past two months — as gold prices pulled back, Chinese consumers' demand for physical gold increased.
However, demand dynamics in India provide a counterbalance.
According to India's largest precious metals refiner, Indian households generally expect the recent gold price decline is not yet over, and have therefore postponed festival-season gold purchases, somewhat weakening the supportive effect of physical demand on gold prices.
OCBC strategist Christopher Wong said in a research report, "Near-term risks still lean toward further consolidation, but the demand side should provide some buffer once selling pressure subsides."
He also noted that for gold to regain more sustained upward momentum, multiple conditions would need to align simultaneously, including falling oil prices, cooling inflation, a weaker dollar, and declining yields.
Comments