Investors focused on this week’s Fed meeting for hints of a possible loosening in the aggressive policy stance. In this environment, the gold price continued to decline on Monday. Thus, the yellow metal is on its way to a seventh consecutive month of losses.
“In this case, it is possible for gold to see limited traction”
Spot gold was trading at $1,638.5, down 0.4% at the time of writing. On a monthly basis, bullion lost about 1% in value. Meanwhile, US gold futures slid 0.26% to $1,642.2. Yeap Jun Rong, IG market strategist, comments:
Market participants will look for clues to reinforce recent speculations that there will be a slowdown in Fed rate hikes after November. Higher alarms or greater emphasis on information about growth risks are therefore valuable. In such a case, it is possible for gold to see a new pull. However, it is a fact that interest rates will remain at high levels for a longer period of time. Therefore, the upstream is still limited.
“Gold can jump to these levels if it finds a foothold at $ 1.639”
Data released on Friday showed that US consumer spending rose more than expected in September. That’s why core inflation data continued to bubble up on expectations that the Fed would slow down. In the midst of this, the dollar index (DXY) gained 0.1%. The benchmark 10-year US Treasury yields remained above the 4% threshold.
Koindeks.com As you can follow, the Fed started raising the overnight benchmark interest rate from a level close to zero in March. Markets now expect a fourth consecutive 75 bps increase at the policy meeting on November 1-2. Gold is classically accepted as a hedge against inflation. However, US rate hikes increase the opportunity cost of holding zero-yield bullion.
SPDR Gold Trust Holdings, the world’s largest gold-backed exchange-traded fund, fell 0.28% to 922.59 tons on Friday. Thus, it saw its lowest level since March 2020. Spot gold is likely to bounce back to $1,653-1,661 after finding a reinforcement around $1,639, according to Reuters technical analyst Wang Tao.
TDS: Gold price to decline on Fed’s signal
Money managers aggressively closed their short gold exposures when a Fed pivot was mentioned. However, TD Securities economists say the Fed is ready to act in an aggressive form this week. Therefore, economists expect the yellow metal to drop. Economists explain their views in the following form:
Markets worry that inflation will fall in the not too distant future. He also hopes that the Fed will sharply reduce its tightening pace. Gold prices are falling in this middle. Despite all this, the long-term risk did not increase. This shows us that traders are not forecasting accelerating interest rates far beyond what is currently priced and a dovish trend in the near future.
According to economists, gold prices are likely to move downwards. Because the Fed will act in an aggressive form on Wednesday. It will most likely signal an ongoing tightening trend. Economists continue to draw attention to the following issues:
Unless there is some sort of concern about financial stability, the Fed is unlikely to take a dovish path. This means that prices and locations should fall as family offices and other speculators reduce risks in response to rising rates.
“Extra drop possible for gold price”
Open interest on gold futures markets rose by about 7.5 thousand contracts this time in the fifth session on Friday, according to CME Group’s preliminary information. Volume followed suit, with nearly 8.3K contracts rising, offsetting the previous daily decline.
Market analyst Pablo Piovano says Friday’s drop in gold prices is amid rising open interest and volume. According to the analyst, this opens the door to a deeper pullback in the very near term. Against this, the analyst notes that the expensive metal is currently finding reinforcements in the $1,615 region.