Gold Price Fundamental Daily Forecast

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Gold futures fell slightly on Monday as Treasury yields edged higher and the US dollar resumed its bullish trend. The lack of upside follow-up after Friday’s rebound suggests that investors are already bracing for a number of aggressive rate hikes by central banks this week, including the Swiss National Bank (SNB), the US Federal Reserve and the Bank of England.

As of 07:00 GMT, December Comex Gold is trading at $1674.40, down $9.10 or -0.54%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $155.85, up $0.87 or +0.56%.

Traders expect a low volume session due to the absence of any major economic reports. Additionally, many of the major players are expected to sideline ahead of central bank announcements this week. Additionally, the world’s largest physical gold trading center in London will be closed for Queen Elizabeth’s funeral.

Factors driving the gold trade

Although textbook traders continue to insist that gold is a safe haven, its failure to react to soaring inflation, economic growth and rising geopolitical risks suggests otherwise. In these uncertain times, traders have turned to the US dollar for protection.

Rapidly rising interest rates have also been a problem for gold, as high interest rates increase the opportunity cost of holding non-performing bullion. Basically, why invest in gold with no return when you can earn interest by holding government debt or putting it in a bank?

What to expect from the major central bank this week

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) is expected to begin its two-day interest rate meeting on September 20 and announce its decision the following day. Market participants are fully priced in to a 75 basis point rate hike by the US central bank.

The Swiss National Bank (SNB) will join the club of raising rates by 75 basis points on Thursday to stifle inflation, which has reached nearly three decades, according to economists polled by Reuters, who also said the rise in prices had not yet peaked despite a strong currency.

Last week, SNB Chairman Thomas Jordan shared similar concerns and said the outlook for inflation was more uncertain than normal, suggesting more aggressive rate hikes were needed.

Also on Thursday, the Bank of England (BoE) is expected to raise its key rate by 50 basis points. Earlier in the month, traders were pricing in an over 80% chance that this would raise rates by 75 basis points.

Short-term outlook

We could see choppy two-way trade ahead of the Fed’s rate hike on Thursday due to lingering uncertainty surrounding the magnitude of the central bank’s next rate hike.

Although the CME’s FedWatch tool shows traders expecting a 75 basis point rate hike, the Fed could still think big with a one percentage point rate hike. This hawkish move would crush gold prices and likely send the December futures contract to $1600.

Rates are rising too much, too fast, so gold is likely to stay in “sell the rally” mode. So even if there is a hedge rally after the Fed decision, it is likely to encounter resistance.

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