On the morning of September 29, in the Asian market, gold recorded a big shock when it fell sharply and lost the mark of 1,900 USD/ounce. By the night of September 29, in the US market, this precious metal continued to be sold off and lost the mark of 1,850 USD/ounce.
Not stopping there, the gold market is expected to fall further and even test the support level at $1,800/ounce after falling below $1,900 for the first time since March.
Meanwhile, the 10-year Treasury yield is currently trading near a fresh 16-year high of 4.6%. The US dollar index is holding near a one-year high above 106.
Continuously being sold off, the gold price has lost the 1,900 USD/ounce mark and is forecast to continue to "break through" 1,800 USD/ounce (equivalent to 53 million VND/tael). Illustrative photo
However, any short-term weakness does not change the fundamental long-term bullish outlook for the precious metal, according to one market analyst.
Specifically, in an interview with Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said that based on the level of bond yields and the US dollar for most of the month, the sell-off should have happened sooner. He added that even after this sell-off, gold prices remain relatively strong.
Hansen added that gold’s weakness makes sense as the Federal Reserve maintains its tightening bias. Last week, the US central bank left interest rates unchanged but signaled it was prepared to keep them in a tight range for the foreseeable future as it looks to bring inflation down to its 2% target.
While the Fed remains optimistic that it can steer the economy toward a soft landing as it curbs growth with restrictive interest rates, Hansen said the market is sending mixed signals. He noted that the steep decline in the yield curve continues to point to an impending recession.
Hansen said the Fed is now caught between slowing economic growth and persistently higher inflation due to rising energy costs.
“In my book, stagflation is coming and that’s what’s keeping gold at these levels. We’ve said it before, but now is the time for gold to be patient and go higher,” he said.
While the Fed’s stance on monetary policy is working against gold, Hansen said he doubts that sentiment will change as growth weakens. He added that investors remain concerned that the Fed’s aggressive stance will push the economy into recession.
This fear continues to support gold as a safe-haven asset, he said.
“Demand for gold as a hedge against a soft landing is unlikely to disappear as the outlook for the US economy in the coming months becomes increasingly challenging. With that in mind, we maintain a patient bullish stance on gold,” Hansen said in a recent report.
“The timing of a new hike will remain highly dependent on US economic data as we wait for the Federal Open Market Committee (FOMC) to shift its focus from rate hikes to rate cuts and in the meantime, as seen in the last quarter,” Hansen opined.
However, before the price increases again, gold has not been able to end this shocking price drop.
As for how far gold could fall, Hansen said he wouldn’t rule out a test of $1,800 for the precious metal in the near term, but added that there could be some solid resistance between $1,840 and $1,850.
At the world gold price of 1,800 USD/ounce, the converted price of SJC gold will reach about 53 million VND/tael, a decrease of about 2 million VND/tael compared to the current time.
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