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This week, gold is showing a sluggish dynamic although it has all reasons to skyrocket. The precious metal is believed to be underrated by the market
It seems that factors such as a weak US dollar, low interest rates, inflation growth, and slow pace of economic recovery in the United States should push the asset to its last-year highs. However, it has not happened.
After the speech of the Fed's Chair Powell at the Jackson Hole symposium on Friday, the precious metal scored 1.4% gains in an attempt to catch a bullish impulse.
During this week, the quote is stuck in a price corridor ahead of the release of the Nonfarm Payrolls report scheduled for Friday.
ADP employment change data published yesterday showed a 347K increase in jobs, compared with market expectations of a 600K rise.
The greenback edged lower after the disappointing report came out, and gold went up. However, it did not last long. The price went down, following the release of the IHS Markit PMI results for August.
The report logged an increase in manufacturing business activity to 59.9% from 59.5%, compared with market expectations of a 58.6% rise. As a result, gold fell by 0.1%, or $2.10, settling at $1,816.
A mild decrease in gold's dynamic is associated with the upcoming report of the US Labor Department. Traders hope that this data will help the Federal Reserve to determine the pace and time of tapering.
The uncertainty surrounding the Fed's future monetary policy stance is the main restraining factor in the precious metals market right now, Nitesh Shah, Director of Research at WisdomTree, said.
Nitesh Shah also sees investors' confidence in the Fed's inflation forecasts as one of the main problems on the way of gold to new highs.
The regulator keeps insisting that an increase in consumer prices is temporary and says nothing about how long it is going to last. However, as soon as the Fed makes a clear signal, gold will begin to surge.
Nitesh Shah underlines that the price of gold is underestimated right now by around 12%. Given the current state of the greenback, the expert assumes that the actual price should be around $2K per troy ounce.
The analyst suggests that the underrated status of gold indicates that the precious metal still has growth potential. This means that the market may enter a correction to last-year record highs soon.
As for long-term forecasts, Nitesh Shah says that a possible decline in bond purchases this year and an increase in interest rates by the end of 2022 will limit future gold prices.
According to the expert, the value of the asset may grow to $1,970 by the fourth quarter of 2021. However, by the second quarter of 2022, the quote risks falling to $1,860.
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