Gold: The Reversal of Fortune
Gold: The Reversal of Fortune, Gold prices are on the move again after a brief respite and this time it appears that the metal may be headed for its yearly lows.
Topics
Gold’s 50
The US Update
The Fed’s War on Inflation
Gold’s 50
This comes as US Treasury yields continue to rise, pushing up the dollar and making gold less attractive to investors. However, all is not lost for bullion bulls as the 50-day moving average could provide support in the near term.
Looking at the chart, we can see that gold prices have been in a downtrend since early August when they peaked above $2000 per ounce. Since then, prices have fallen steadily as US Treasury yields have risen.
The 10-year yield is now trading at its highest level since March 2020 and this has put pressure on gold.
However, there may be some relief ahead as the 50-day moving average looks set to provide support around $1850 per ounce. This average has acted as a key level of support/resistance in recent months and if it holds then we could see gold prices rebound from here in the short term.
Gold prices have been on the rise in recent weeks as investors seek refuge from volatile markets and concerns about a potential trade war.
However, it looks like the rebound in gold may be short-lived as the CME FedWatch tool shows a greater than 90% probability for another 75bp rate hike.
This means that interest rates are likely to continue to rise, which could put pressure on gold prices.
So, if you’re thinking of investing in gold, you may want to reconsider and wait for more clarity on the direction of interest rates before making any decisions.
The US Update
The Federal Open Market Committee (FOMC) is expected to retain hawkish forward guidance as the core rate,
the Fed’s preferred gauge for inflation is expected to increase to 5.2% in September from 4.9% per annum the month prior.
Evidence of persistent price growth may prop up US yields as it puts pressure on Chairman Jerome Powell and Co. to pursue a highly restrictive policy.
The precious metal gold may attempt to test the 50-Day SMA ($1691) ahead of the Fed rate decision on November 2 as it reverses ahead of the yearly low ($1615).
This is because developments coming out of the US to continue to drag on the price of gold as the FOMC plans to implement higher interest rates throughout the rest of 2016.
The Fed’s War on Inflation
The U.S. economy is showing signs of slowing down,
as business activity contracted for the fourth straight month in October.
This is likely due to the combination of high inflation and rising interest rates,
which are making it difficult for businesses to grow.
While this may be a cause for concern in the short term,
it’s important to remember that the U.S. economy is still one of the strongest in the world
and has shown resilience in times of adversity before.
With that being said, traders and investors should keep a close eye on
economic indicators over the coming months to get a better sense of where things are headed.
The Fed is widely expected to hike interest rates for the fourth consecutive time on
Nov. 2nd according to economists polled by Reuters.
The central bank has been under pressure to raise rates in order to keep inflation in check,
which has been running above its 2% target for several months.
Some market participants have argued that the Fed should pause its rate hikes until inflation falls back to around half its current level.
However, with inflation still well above target and no clear sign of slowing down,
it seems unlikely that the central bank will take this advice.
The bottom line is that investors should expect another rate hike from the Fed next week,
which could lead to further volatility in financial markets.
Gold is often thought of as a hedge against inflation.
However, when interest rates rise, the opportunity cost of holding gold increases.
This is because higher interest rates mean that investors can earn a higher return by investing in other assets such as bonds.
Additionally, rising interest rates usually lead to a stronger dollar,
which makes gold less attractive to foreign investors.