September 14, 2024 (MLN): An issue that should be noted is the disparity between the prices of gold and oil. However, in contrast to the past, both are now moving in opposing directions.
This discrepancy arises from inflation, which diminishes buying power while simultaneously revaluing gold.
From my perspective, this is hardly the only reason for the increase in gold prices. Three crucial factors are driving gold to new historical highs. Global central banks are increasing their purchases of gold to expand their gold reserves and foreign exchange reserves proportionally.
Another trend is the rise of cryptocurrency, digital currency, or virtual currency, which are digital assets not yet regulated or controlled by authorities.
Perhaps most importantly, the rising number of conflicts and risks of turmoil worldwide are driving the price of gold upwards.
In the current environment, gold will only undergo corrections and continue to rise unless the situation improves or the US Federal Reserve takes steps to protect its currency.
Although the national debt has reached a staggering $35.35 trillion and annual financing exceeds one trillion, the United States has several strategies at its disposal to protect the value of the USD.
Broadly speaking, in the short to medium term, the major resistance for gold is at $2635, with a break risking a move to $2660.
The primary support is at $2490 or $2460. It is anticipated that gold will reach the $2690-2700 range following a downward correction, possibly before the end of the year.
The revival of expectations for a 50 basis point reduction by the Federal Reserve, following a series of casual discussions by some Fed officials, contributed to a major spike in the value of the Japanese yen and gold, which in turn undermined the US dollar.
Nevertheless, market sentiment regarding the magnitude of the US interest rate reduction remains divided. Typically, when FED members convene for the FOMC meeting, their policy position is clear and the result is generally unanimous.
Notably, the US PPI and CPI statistics published last week showed a slight increase, which does not support the idea of a larger rate cut. This time, market participants are undoubtedly perplexed.
The outcome of the US interest rate decision will be determined on Wednesday.
On Thursday, the Bank of England MPC members will vote to determine the interest rate, and they are anticipated to vote for a hold unless the Consumer Price Index (CPI) shows further easing.
The Bank of Japan is scheduled to decide on interest rates on Friday, which is anticipated to remain on hold until December.
Gold is currently at $2577. It could initially get support around $2548-53 and is very likely to seek new peaks. A break of the $2598 level could push it towards the $2610 level.
Expected volatility is likely, and the next move will mostly be influenced by the Federal Reserve's decision on interest rates.
The euro, currently at 1.1072, must surpass 1.1120-40 to achieve further gains. Otherwise, it will continue to fall. However, unless the support level of 1.0940-50 is breached, the euro is expected to trade within the given range.
The pound, currently at 1.3120, is expected to maintain a milder tone initially. It should not surrender as long as support at 1.3010-20 remains intact. There are break risks at 1.2950.
However, I expect the pound sterling to rebound to around 1.3220 later in the week.
The Japanese yen, currently at 140.77, is anticipated to experience ongoing volatility. If 139.05 holds, the USD has the potential to recover.
An upward break of 143.90 will encourage more gains. Otherwise, further declines toward 137.50 should be watched closely.
The writer is the former Country Treasurer of Chase Manhattan Bank
Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.
Posted on: 2024-09-14T20:16:01+05:00
