Gold price next week: Be cautious when the market is too "hot"

12/17/2023 09:52 Nhat Linh Print article

ANTD.VN - Many experts warn investors not to expect too much from the increase in gold prices, because the precious metal is quite sensitive after overreacting to expectations of interest rate cuts.

Gold prices have been volatile over the past week as the Fed delivered a softer-than-expected message on monetary policy. Specifically, at the end of its policy meeting on Wednesday, Fed officials unanimously kept the federal funds rate in a range of 5.25% - 5.5%, the highest level since 2001.

Notably, this is the first time since March 2021 that policymakers have forecast no further interest rate hikes – a pivot that the market has long been waiting for.

World gold prices increased by nearly 50 USD/ounce after this decision, before narrowing the increase at the end of the week.

At the end of the trading week, spot gold stood at 2,019.5 USD/ounce, up about 15 USD for the whole week.

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Gold prices are very sensitive to interest rate expectations.

Domestically, SJC gold prices also increased quite strongly with the highest increase of 600 thousand VND/tael. At the end of the week, the national gold brand listed around 73.35 - 74.35 million VND/tael, 300 - 500 thousand VND/tael higher than the previous weekend.

According to experts, the gold market has found its footing again, however the precious metals market still has some work to do before it can reach the all-time high it reached two weeks ago.

In the short term, experts also warned that this precious metal will find it difficult to break out next week because the financial market will likely fall into a state of weak trading when most people are focusing on major holidays, including Christmas and New Year.

At the same time, some analysts also warn that the market is still too aggressive in pricing in a rate cut next year.

While Fed officials have signaled they are likely to cut rates three times next year, or 0.75 percentage points, bringing the funds rate to around 4.6%, the CME FedWatch Tool is pricing in rates below 4% by this time in 2024.

The market is also pricing in the first rate cut in March, which some analysts say is premature.

As a result, many experts are finding that the gold price reaction this week has been a bit overdone. And with overreaction, gold will be more sensitive to news that does not support it.

In fact, gold immediately faced selling pressure over the weekend, when a Fed member said it was too early to cut interest rates.

Next week, the biggest risk event for the precious metals market is expected to be U.S. PCE inflation data, due out on Thursday. If inflation continues to cool to the Federal Reserve’s preferred benchmark, that would add to expectations of aggressive rate cuts, supporting gold prices.

Otherwise, it may trigger another sell-off.

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