Gold failed to gain above $1,750. Also, the ‘short squeeze’ in hedge funds has proven to be short-lived. Therefore, golden bears are firmly in control of the market.
Two important headwinds for gold: Dollar and US bond yield
Markets are shifting expectations that the Federal Reserve will quickly depart from its current aggressive monetary policy strategy, according to market analysts. Therefore, hedge funds remain pessimistic about gold.
Expectations for further rate hikes prevail in the rest of the year and in the first quarter of 2023. This continues to support the US dollar at a 20-year high. Also, bond yields are over 3%. Dollar and bond yields remain two key headwind positions for the precious metal. Meanwhile, markets see a 74% chance for the Federal Reserve to raise interest rates another 75 basis points later this month, according to the CME FedWatch Tool.
“Every drop raises the possibility of a massive capitulation”
According to commodity analysts at TD Securities, gold’s poor performance over the summer indicates that the market is pricing in higher interest rates. However, they add that the next wave of selling will be driven by expectations that a much-anticipated pivot is further away than originally thought. In this context, analysts make the following assessment:
Gold prices have now accurately captured the expected level of interest rates. However, it does not reflect the consequences of a sustained period of restrictive policy. We also see that with each drop in gold prices, the probability of a large capitulation increases. Gold markets are in a highly concentrated and bulging position held by a small number of family offices and proprietary traders that are increasingly at risk as prices approach pandemic entry levels.
Gold’s net position fell
The CFTC’s disaggregated ‘Commitments of Traders’ report for the week ending Aug. 30 was published. The report showed money managers cut their speculative gross long positions on Comex gold futures by 4,089 contracts to 91,761. At the same time, short positions increased by 6,234 contracts to 79,973.
Gold’s net position is now at 11,788 contracts, down 46% from the previous week. During the survey period, gold prices briefly rose above $1,750. However, cryptocoin.comAs you can follow, the yellow metal failed to maintain these gains. Since then, gold prices have stayed near the support just above $1,700.
“This is why gold prices declined”
Commodities analysts at Société Générale note that the entire precious metal complex has seen a bear stream of $2.5 billion. Analysts make the following statement:
These streams came when Jerome Powell was giving his Jackson Hole speech. The US Fed chief reiterated that the central bank’s focus is on taming inflation. This, in turn, raised interest rates. Hence, it also eroded the appeal of the non-interest-bearing, safe-asset bullion. Therefore, precious metal prices fell.
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