Gold’s recent price respite is only temporary and investors should remain cautious until the Federal Reserve acts, Macquarie said on Wednesday.
“Gold as a currency has regained some mojo since its July low, on favourable economic developments and a potential delay to Fed tightening,” the bank said.
The recent turmoil in global FX and equity markets resulting from China’s economic slowdown and yuan devaluation sent gold earlier this week to its highest level since July 7 at $1,701.
“We don’t, however, believe the events of the last week or so have radically changed the outlook for US rates, the dollar and – given the way we view the market – gold,” the bank said.
“Our forecast remains that gold will remain weak until the Fed starts to raise interest rate, and then should rally gently afterwards.”
This is based on the bank’s expectations for the US dollar, and also an historical analysis which shows that Fed tightening cycles tend not to be that bearish for gold when underway especially if long-term rates remain lower than consensus.
A potential delay in the Fed tightening cycle of three months therefore only makes a small difference to this view, it added.
US interest rates have hovered around near zero levels since December 2008 and a rate increase hasn’t taken place in over a decade. In recent months, Federal Reserve Chairwoman Janet Yellen has grown insistent on raising interest rates in 2015.
The CME Group Fedwatch – a tool to gauge market expectations of a rate hike – was last at a 24 percent probability of a rate hike in September. Over the last month, the figure has ranged from 50 to zero.
Macquarie has made adjustments to its third quarter and fourth quarter forecast – from $1,075 to $1,110 and from $1,125 to $1,090 respectively – with the annual average unchanged at $1,152.
The spot gold price was last $1,121.7/1,122.0, down $21.70 on the previous close.
(Editing by Tom Jennemann)
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