2023-09-29 14:06:00
Headwinds from continued strength in the US dollar and 10-year bond yields above 4.5% proved too damaging for the gold market, as prices for the yellow metal fell to their lowest level since March.
The downward momentum is expected to push prices back to 2023 lows of $1,810 in the spot market. Spot gold is currently trading around $1,870 per ounce.
Rapid downward movement
This movement of gold has been very fast since the FOMC interest rate decision. The sell-off gained momentum on Tuesday following prices fell below August lows of $1,885.
This gold sell-off comes following the Federal Reserve indicated that it expects to maintain a restrictive monetary policy for the foreseeable future even as the tightening cycle ends. This pushed bond yields to their highest levels in 16 years and the US dollar to its highest level since November.
However, the strength of the dollar, supported by rising interest rates, which reflects the resilience of the US economy and the huge increase in supply, as well as hedging or liquidation by others, has sapped gold’s previous strength. While many thought that higher inflation would support gold, higher inflation means higher interest rates, making the non-interest-bearing metal somewhat less valuable.
However, the weakness of the European economy is also an important factor in America’s recent strength. It will be difficult for investors to get rid of the dollar as the US economy remains reasonably resilient compared to other countries.
Meanwhile, gold may be vulnerable to further technical selling now as the dollar continues to strengthen, bond yields rise, and economic data supports tightening monetary policy from time to time.
Gold has room to rise
Although gold is still under pressure in the near term, the precious metal still has room to rise once more. Gold will need to fall below $1,800 an ounce before its fundamental outlook changes.
However, rising energy prices coupled with slowing economic growth are creating a turbulent environment, which is expected to eventually push it above $2,000 an ounce.
Meanwhile, gold is expected to see intense buying as prices fall, and while gold prices still have room to decline, investors should not ignore the long-term value in the market, as some analysts view this decline as a buying opportunity.
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