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Gold price

 

"Higher for longer” U.S. interest rates sink gold price to lowest levels since March 

The price of gold dipped below $1,850 per ounce on Monday, reaching their lowest point in seven months, as continued strength in the U.S. dollar (USDX) and elevated yields on U.S. Treasury bonds have kept mounting pressure on the yellow metal. 

Investors are evaluating the possibility of a “higher for longer” interest rate scenario materialising in the U.S. after the Federal Reserve sent a hawkish signal to the market during its September policy meeting. Although it kept the federal funds rate unchanged within the 5.25%-5.5% range, it said a potential interest rate hike before the end of the year is on the cards. Some commentators called the move a “hawkish pause” — or even a “hawkish skip.” 

According to CME's FedWatch tool, traders are currently pricing in a 55% chance that the Federal Reserve will leave interest rates unchanged this year. 

Elevated interest rates increase the opportunity cost of holding gold, which doesn't yield interest, diminishing its attractiveness as an investment. 

Recent data revealed that the core PCE price index — the Fed’s preferred inflation gauge — saw a smaller-than-anticipated increase in August. 

On a separate note, the U.S. economy maintained a reasonably robust growth rate of 2.1% in the second quarter. Investors are now focusing on key U.S. jobs data scheduled for release this week, which will provide further direction for the market. 

 

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Gold price forecast: XAU pressured in the short term, future upside likely, say analysts 

The price of gold has shed close to 5.5% over the past month, breaching the $1,900 mark in late September. After surging above the key of $2,000-per-ounce threshold in early May, gold prices have slid by over 11% — a decrease of $230 — on pressure from U.S. Treasury yields. 

According to economists at TD Securities recently cited by FXStreet, risks are very much to the downside for the commodity: 

 

“The recent convincing drop below $1,900, after trading sideways for most of the year thanks to repeated dip-buying, has very much been driven by the Federal Reserve's statements it will keep policy tight for a long period. 

Continued firm US economic data and a surge in crude oil prices have made the Fed's hawkish narrative very credible, which could see the FOMC dot projections come true.

The Fed's higher rates for longer narrative, fear that surging energy costs will leak into core inflation and a resilient US economy are prompting us to worry that there is still more downside.”

 

In their gold price outlook shared on September 29, strategists at Frankfurt-headquartered Commerzbank said XAU was unlikely to regain any significant ground in the near future: 

 

“For as long as the market continues to expect a ‘soft’ landing in the US, no price recovery is likely to happen for now. After all, this would imply that it will take longer for any interest rate cut to be forthcoming.  

However, because our U.S. experts are more pessimistic and believe that a recession is inevitable, we expect to see more disappointing economic data in the coming weeks. These are likely to put the U.S. dollar under pressure and thereby lend buoyancy to the gold price.”

 

Jim Wyckoff, senior analyst at Kitco Metals, told Reuters that the yellow metal could breach the $1,800 level in the near future, as currency trends are typically long-lasting: 

"There is a reckoning that interest rates are going to be higher for much longer, which has been the bearish element in the precious market. Gold prices could go below $1,800 in the near-term. Trends in the currency markets tend to be stronger and longer lasting. The appreciation of the U.S. dollar may not end anytime soon, pressuring the gold market." 

Analysts at Melbourne-based bank ANZ were highly bullish on the gold price in a comment on September 27, saying it could rise to $2,000 by the end of 2023: 

 

“Gold prices have been resilient in the face of rising US Treasury yields and a stronger USD. While the ‘higher rates for longer’ narrative gains momentum in response to strong US economic data, we see these headwinds having limited impact on gold over the coming months. 

We expect gold to trade near $2,000 by the end of this year.”

 

The bank issued another comment several days later, saying it saw potential for the “strategic buying” of the commodity around the $1,850 level: 

 

“Increasing conviction around narrative of ‘higher for longer rates’ is tarnishing the investment appeal of gold in the near term.  

Favorable rate differentials in the US should keep the USD on a strong footing. Nevertheless, we see strategic buying emerging around $1,850 as long-term drivers remain in place.”

 

The gold price forecast shared by economic data aggregator TradingEconomics was moderately bullish, seeing the commodity trading at a potential average of $1,869.26 per troy ounce by the end of this quarter. The platform’s 12-month gold projection estimated it to trade at $1,933.95 by early October 2024. 
 
The front-month gold futures contract on the NYMEX was trading at $1,836.00 at the time of writing, as per MarketWatch data. 

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. 

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