Gold prices continue to drop, pushed down by a stronger US dollar. However, analysts say the bearish trend is fading. When will gold reverse upwards?
The precious metal finished yesterday's trading session at a 3-month low, losing $17.60 or almost 1% and falling to $1,841 per ounce.
Silver prices decreased as well, falling by 1.8% to $21.424, the lowest level since the summer of 2020.
The rising US dollar has put pressure on precious metals. The US dollar index increased by 0.2% on Tuesday.
The hawkish policy of the Federal Reserve is boosting USD. The US regulator has already begun an aggressive monetary tightening cycle to quell high inflation.
Fed board members have once again presented their case in favor of the biggest interest rate hike since the 1990s.
The president of Fed Reserve Bank of Cleveland Loretta Mester stated yesterday that increasing the rate by 50 basis points was a timely decision and "made perfect sense". She did not rule out a 75 basis point hike in the future.
Expectations of further aggressive policy moves by the Fed are pushing up the US dollar and US Treasury bond yields, making a gold uptrend unlikely in the near future.
However, Australia and New Zealand Banking Group analysts think the bearish momentum in the gold market is weakening.
According to ANZ, rising concerns about global economic growth slowdown would limit the downtrend.
More aggressive Fed policy decisions in the next several months would increase the risk of recession.
ANZ sees the regulator increase interest rates by 50 basis points in June and July. The rate would reach 3.75% by mid-2023.
"We expect gold to remain supported at $1,850/oz, with upside potential of $1,950/oz," ANZ senior commodity strategist Daniel Hynes and commodity strategist Soni Kumari said.
"A convincing break of above the upper trend line of $1,930/oz would confirm a bullish move. Once this level breaks, prices could touch the previous highs of $2,000/oz and $2,050/oz," Hynes and Kumari added.
Furthermore, ANZ experts forecast increased demand for gold as a hedge against economic and geopolitical risks.
"Corrections in equity markets amid the uncertain economic backdrop will benefit gold's status as a risk diversifier," ANZ strategists noted. They added that the ongoing risk of an EU ban on Russian oil imports is likely to give support to gold.
New sanctions against Russia could lead to increased gold purchases by central banks, Hynes and Kumari stated.
"Central banks tend to diversify their foreign currency reserves during crises, increasing their gold buying," they said.