Gold futures remained below the key $1,800 level on Wednesday and extended losses for the second consecutive session amid pressure from further US dollar strength. According to Gold Newsletter editor Brien Lundin; gold, like all markets, is traded on a daily basis based on how traders interpret tea leaves (Federal Reserve) for monetary policy. Has the prediction of the future of gold really turned into fortune-telling? cryptocoin.com We have compiled the opinions of experts for you.
Gold failed to rise despite NFP falling short of expectations
The Federal Reserve’s Beige Book on economic conditions, released Wednesday afternoon, said overall economic growth “slipped to a moderate pace from early July to August.” Following this announcement, the precious metal traded slightly higher than Wednesday’s price levels.
December gold futures were down 0.3% to settle at $1,793.50 an ounce. In electronic commerce shortly after the publication of Beige Book, the contract was traded at $1,794.90. Gold prices fell 1.9% on Tuesday, according to FactSet data. The sharpest one-day percentage drop for the most active contract since Aug. 9, and the move pushed the contract to the lowest settlement since Aug. Chintan Karnani, research director of Insignia Consultants, commented:
Despite sharp gains in the dollar, expectations that central banks will cut back on asset purchases, and gold’s low US August non-farm payrolls last week, gold’s failure to surpass $1,840 last week caused gold to drop below a key $1,800. This has caused short-term traders to use every spike to exit their gold investments.
There is a fragile balance
The dollar continued to strengthen, putting pressure on the dollar-traded precious metal. The ICE US Dollar Index DXY is up 0.2% at 92.65. Gold market transactions took place against the backdrop of uncertainty regarding the Fed’s monetary policy plans, amid concerns over the delta variant of the coronavirus causing COVID-19 that supported price movements and the labor market recovery seemed unstable. Tyler Richey of Sevens Report Research wrote in a Wednesday news release:
The bullish situation for gold is characterized by a very fragile balance between a stable but relatively slow economic recovery (very hot data causes hawkish money flows) and still cohesive central bank policy. So anything that contradicts any of these will weigh on gold in the short run.
“Fed’s September decision will hang on gold”
Meanwhile, weak benchmark bond yields, which could compete for safe-haven flow against the yellow metal, did not provide much support for gold. ActivTrades technical analyst Pierre Veyret wrote in a note on Wednesday:
Despite declines in riskier assets, gold failed to capitalize on the current short-term hedging environment. Investors may want to wait for more signs of an economic slowdown before making the decision to move towards safe-havens.
On Friday, gold strengthened on a slight slide in the dollar, but uncertainty about the Federal Reserve’s next move to ease economic support measures has kept some investors on the sidelines. Commerzbank analyst Daniel Briesemann said that gold is mostly hovering around $1,800 and many market participants are on the sidelines, partly due to uncertainty surrounding the Fed’s contraction timeline.
The Fed’s decision when it begins to contract will hang on gold.
The next meeting of the Federal Open Market Committee will be held September 21-22. While non-yielding bullion tends to win when interest rates are low, precious metals investors are keeping a close eye on cues from the Fed, as some see bullion as a hedge against hyperinflation fueled by massive stimulus. And the signals were mixed with a recent Fed report that showed the US economy “shrunk a bit” in August. But a number of Fed officials said this week that the slowdown in job growth in August will not thwart plans to cut asset purchases this year. UBS analyst Giovanni Staunovo also noted the impact of the Fed’s profits on the gold price:
Gold continued to trade range-bound and it is the Fed that has had the biggest influence on the gold price, as the precious metal is primarily looked at in dollar terms.
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