Investors focused on this week’s Fed meeting for clues about 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 that gold will see limited traction”
Spot gold was down 0.4% at $1,638.5 at the time of writing. On a monthly basis, bullion depreciated by about 1%. 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 concerns about growth risks or more emphasis on data is therefore important. 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 upside is still limited.
“Gold can bounce to these levels if it finds support 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. Meanwhile, the dollar index (DXY) gained 0.1%. The benchmark 10-year US Treasury yields remained above the 4% threshold.
cryptocoin.comAs 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 straight 75 bps gain at the policy meeting on November 1-2. Gold has traditionally been regarded 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-traded fund, fell 0.28% to 922.59 tonnes 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 support near $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. That said, TD Securities economists say the Fed is ready to act aggressively this week. Therefore, economists expect the yellow metal to drop. Economists explain their views as follows:
Markets are worried that inflation will fall in the not-too-distant future. He also hopes that the Fed will sharply reduce the pace of tightening. Meanwhile, gold prices are falling. Despite all this, the long-term risk did not increase. This shows us that traders are not predicting accelerating interest rates far beyond what is currently priced in, and also not predicting a dovish trend anytime soon.
According to economists, gold prices are likely to move down. Because the Fed will act aggressively on Wednesday. It will most likely signal an ongoing tightening trend. Economists continue to draw attention to the following:
Unless there is some kind of concern about financial stability, it is unlikely that the Fed will turn in a dovish direction. This means that prices and positions 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 around 7.5 thousand contracts this time for the fifth session in a row on Friday, according to preliminary data from CME Group. Volume followed suit, adding about 8.3k contracts, 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 for a deeper pullback in the very near term. Against this, the analyst notes that the precious metal is currently finding support in the $1,615 region.
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