In the early Asian session on Tuesday (November 2), spot gold oscillated in a narrow range near the 1790 mark. Investors are awaiting this week's Federal Open Market Committee (FOMC) meeting and the October jobs report. Due to market concerns about the Fed's tightening of policy, gold prices have remained range-bound for a long time. Two key events this week may determine the direction and price of gold. Currently, equities, real estate and other aspects have hit new highs. Mike Larson, a senior analyst at Wies Ratings, said the long-awaited gold and silver rally would emerge over the next six months, with gold prices expected to break through all-time highs.
<h1 class="pgc-h-arrow-right" data-track="3" > the market expects the Fed to initiate a reduction but a rate hike is still far away</h1>
Currently, investors are waiting for two key events this week that will determine the direction and price of gold. First, at 2:00 a.m. Beijing time on Thursday, the Federal Reserve will issue a monetary policy statement, and Powell will hold a press conference about half an hour after the interest rate decision is announced.
The Fed is expected to announce the start of scaling back $120 billion in asset purchases per month. At the last FOMC meeting, the Fed revealed that they would scale back $15 billion in purchases each month.
Currently, the Fed has been buying assets, which are divided into U.S. bonds and notes ($80 billion) and mortgage-backed securities ($40 billion). It is expected that once the scale of debt purchases begins, they will reduce their purchases of $10 billion per month in U.S. Treasury bonds and reduce their MBS assets by $5 billion per month. This means that their reduced debt purchases will last for 8 months.
However, the Fed did not solve the problem of shrinking the balance sheet, and all it did was reduce asset purchases. During the last recession in 2009, the Fed's balance sheet swelled to $4.5 trillion. They also cut their balance sheet from $4.5 trillion to $3.7 trillion until the Fed decided that further cuts would adversely affect the economy. Over the past year and a half, the Fed has been aggressively expanding its balance sheet, and now its balance sheet has more than doubled to $8.6 trillion.
It is also believed that the Fed will not start raising interest rates until it ends its debt reduction, and that the debt reduction process is likely to end in June or July.
<h1 class="pgc-h-arrow-right" data-track="5" > non-farm data has been lower than expected several times, and gold prices have been consolidating for a long time to seek a breakthrough</h1>
The second key event is that at 20:30 Beijing time on Friday, the US Department of Labor will release the October non-farm payrolls report. The September jobs report fell well short of economists' expectations and forecasts. The forecast for last month's jobs report was that nonfarm jobs would add 450,000 Americans. However, the actual figures add only 194,000 jobs, clearly showing the impact of the Delta mutation virus and labor market shortages.
The current forecast for the November jobs report is that 450,000 new jobs will be created in October. However, actual data for the past two months has been much lower than expected. In September, the Labor Department reported 317,000 new jobs, down from the 400,000 expected in an economist survey.
Gold prices have remained range-bound for a long time due to market concerns about the Fed's tightening of policy, but have now shown all the conditions for a sharp rise. The adjustment cycle of an asset is a war between bulls and bears. This situation in which bulls and bears alternately dominate the market can last for a long time before it erupts.
From the Russell index, gold has been consolidating for 10 months. Analysts believe that the longer the integration, the greater the final breakthrough. With the key Federal Open Market Committee (FOMC) meeting and the October jobs report coming out this week, it may help gold set the course.
<h1 class="pgc-h-arrow-right" data-track="7" > analysts are bullish on gold prices to break out in 6 months, a record high</h1>
Mike Larson, senior analyst at Weiss Ratings, said: "The market is mostly at a high level at the moment, with real estate being overvalued and stocks overvalued, yet shares in precious metals and minerals companies are still relatively cheap. "What has pulled gold and silver prices back this year is concern that the Fed will have to act aggressively and raise interest rates quickly to curb inflation.
But Larsen said: "People will realize in early 2022 that the Fed will not be able to take aggressive measures." People need to recognize that the Fed faces enormous political pressure to put employment above inflation. ”
Larson noted: "This tightening cycle will be very different from the previous cycle, and gold and silver will be the most beneficial." As we move into mid-2022, we will see the next step up for gold and silver as people will no longer be so worried about the Fed. Especially if the GDP trend is a little bit down, what incentive do they have to raise interest rates sharply?"
Larson's price outlook is rather optimistic, with both gold and silver expected to hit new highs over the next six months: "The gold and silver highs we saw 14 months ago could be overtaken next year. Gold is expected to reach $2200 to $2400. Silver prices are likely to follow the rally. ”
Spot gold traded in a narrow range on Tuesday (November 2) trading near $1790. The first resistance level facing the upward direction is the 1800 mark. After breaking through this key psychological level, the next resistance level appeared at $1836, corresponding to the high in early September. The current support level, which starts at the 50-day moving average, is currently fixed at $1782, followed by Friday's low of $1772. Strong support for gold is at $1748 and $1720.
(Spot Gold Daily Chart)