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(Kitco News) – The gold market may not be ready to break out of its neutral trading channel around $1,950 just yet, but it is well positioned to benefit from a shift in sentiment that could come sooner than some expect.

Yes, the US managed to avoid a recession and expectations of a soft landing continue to grow; However, many analysts continue to doubt that this optimistic goal can be achieved.

For many analysts, gold price trends prove that investors are adopting a more cautious stance to protect themselves from a downturn.

Gold’s position is even more impressive when you look at what it experienced this week. Although the Federal Reserve did not raise interest rates on Wednesday, it maintained its hawkish stance. Federal Reserve Chairman Jerome Powell said the central bank would keep interest rates at restrictive levels for the foreseeable future, even though interest rates are nearing a peak.

He added that the central bank will only know when interest rates are sufficiently restrictive when it sees it.

The biggest surprise for many economists about this week’s decision is that the central bank sees only two possible rate cuts next year, compared to the four rate cuts forecast in June. This fits with the growing “higher for longer” narrative that is currently building.

The Fed’s stance pushed 10-year bond yields to a new 15-year high of 4.5%. At the same time, the US dollar index rose over 105 points to its highest level since November 2022. Analysts at Commerzbank noted that real yields reached 2%, an increase of 50 basis points from the previous month.

Despite all this, gold continues to hold at around $1,950 an ounce, which has become an important psychological level.

In an interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said gold remains an important portfolio diversifier as the Fed continues to put pressure on the economy to cool inflation.

“At the beginning of the year I said that equity markets had more to worry about from the Fed than gold, and I still believe that,” he said. “Yes, the economy has been very resilient so far this year, but Powell said on Wednesday that they still need below-trend growth to bring inflation down to the 2% target. Investors should believe Powell when he says this because he means it.”

And it’s not just the Federal Reserve that’s entering the endgame. The Swiss National Bank, the Bank of England and the Bank of Japan also left interest rates unchanged this week.

Both the SNB and BOE said they are close to bringing inflation under control as economic growth begins to slow. Gold performed well against both currencies following their monetary policy decisions.

Although the gold market lacks momentum and investors are waiting, Milling-Stanley points out that there is still significant growth potential in the market. This week, State Street released an update to its gold investor survey released in June. The updated analysis looked at the role that financial advisors can play in the development of the gold market.
The survey found that 20% of respondents said they owned some gold. In further analysis, the report said that about a third of investors did not invest in gold because they did not know enough about how to invest in the precious metal.

“The key message from analysts is that the future of gold investment appears secure. This is very, very good news,” Milling-Stanley said.

Finally, we must not forget that central bank demand continues to provide a solid basis. Analysts at the World Gold Council reported that Russia’s central bank bought 3 tons of gold last month and Russia’s gold reserves are now back to 2022 levels.

That’s it for this week, I hope you have a great weekend.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee this accuracy. This article is for informational purposes only. It is not a request to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no liability for any loss and/or damage arising from the use of this publication.

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