Gold Falls for Two Consecutive Sessions, Once Again Losing the USD 4,000/oz Mark as US Interest Rate Expectations Outweigh Buying Support
(MENAFN- MENAFNEditorial)
Gold fell for a second consecutive session yesterday, November 11, as expectations of further Fed tightening kept selling pressure from easing. After falling nearly 3% in the previous session, gold continued to retreat to around USD 3,987 late in the US session, down another 1.1%. There were still periods of recovery, but prices could not hold the USD 4,000 mark, showing that investors remained cautious about the US interest rate outlook, while buying was not strong enough to prevent prices from falling further.
The greatest pressure on gold at this point perhaps comes from the market having to consider the possibility of US interest rates rising more sharply than expected following US inflation data.
US CPI rose 0.4% month-on-month in October, above the forecast of 0.3%, while core CPI increased 0.3%. Although the pace of headline price increases slowed somewhat compared with September, this result alone is still not enough to strengthen confidence that inflationary pressures are being brought under control. And for a precious metal like gold, persistent inflation has a significant adverse impact, leading investors to expect further Fed rate hikes and thereby increasing the opportunity cost of holding it.
The possibility of a 50-basis-point Fed rate hike in December has therefore started to enter market expectations, although a 25-basis-point increase remains the main scenario. Even though this is only a change in expectations, it still provides some support for the US dollar and pushes bond yields higher, putting simultaneous pressure on gold.
Although the Fed has not actually raised rates more aggressively, the emergence of signals that force investors to adjust their positions to prepare for that possibility has already been enough to make gold’s recoveries more difficult.
But both sides also need to be considered before reaching a conclusion about a medium-term trend. The past two sessions of declines are not enough to conclude that long-term demand for gold has weakened broadly.
Looking more broadly, global gold ETFs still attracted nearly USD 2.7 billion in net inflows in October, marking the fourth consecutive month of inflows, although the pace slowed compared with September. Central banks also purchased a net 321 tonnes in the third quarter. These figures show that demand for accumulation remains, but monthly and quarterly data do not fully reflect buye’s’ responses to the latest rise in interest rate expectations.
In the short term, I still lean towards gold remaining under pressure, because the factor driving prices lower, namely the adjustment to a shift in interest rate expectations that is unfavourable for the precious metal, has yet to show signs of changing.
And a rebound after two sessions of heavy selling is possible, but for gains to hold, the market needs to see the US dollar and yields ease, or new economic data reduce the likelihood that the Fed will have to act more aggressively. If rate hike expectations continue to rise, long-term buying could help limit the decline but is unlikely to bring about an immediate reversal.
Gold fell for a second consecutive session yesterday, November 11, as expectations of further Fed tightening kept selling pressure from easing. After falling nearly 3% in the previous session, gold continued to retreat to around USD 3,987 late in the US session, down another 1.1%. There were still periods of recovery, but prices could not hold the USD 4,000 mark, showing that investors remained cautious about the US interest rate outlook, while buying was not strong enough to prevent prices from falling further.
The greatest pressure on gold at this point perhaps comes from the market having to consider the possibility of US interest rates rising more sharply than expected following US inflation data.
US CPI rose 0.4% month-on-month in October, above the forecast of 0.3%, while core CPI increased 0.3%. Although the pace of headline price increases slowed somewhat compared with September, this result alone is still not enough to strengthen confidence that inflationary pressures are being brought under control. And for a precious metal like gold, persistent inflation has a significant adverse impact, leading investors to expect further Fed rate hikes and thereby increasing the opportunity cost of holding it.
The possibility of a 50-basis-point Fed rate hike in December has therefore started to enter market expectations, although a 25-basis-point increase remains the main scenario. Even though this is only a change in expectations, it still provides some support for the US dollar and pushes bond yields higher, putting simultaneous pressure on gold.
Although the Fed has not actually raised rates more aggressively, the emergence of signals that force investors to adjust their positions to prepare for that possibility has already been enough to make gold’s recoveries more difficult.
But both sides also need to be considered before reaching a conclusion about a medium-term trend. The past two sessions of declines are not enough to conclude that long-term demand for gold has weakened broadly.
Looking more broadly, global gold ETFs still attracted nearly USD 2.7 billion in net inflows in October, marking the fourth consecutive month of inflows, although the pace slowed compared with September. Central banks also purchased a net 321 tonnes in the third quarter. These figures show that demand for accumulation remains, but monthly and quarterly data do not fully reflect buye’s’ responses to the latest rise in interest rate expectations.
In the short term, I still lean towards gold remaining under pressure, because the factor driving prices lower, namely the adjustment to a shift in interest rate expectations that is unfavourable for the precious metal, has yet to show signs of changing.
And a rebound after two sessions of heavy selling is possible, but for gains to hold, the market needs to see the US dollar and yields ease, or new economic data reduce the likelihood that the Fed will have to act more aggressively. If rate hike expectations continue to rise, long-term buying could help limit the decline but is unlikely to bring about an immediate reversal.
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