Gold Inches Higher But Outlook Remains Bearish


Gold prices recovered on Wednesday after falling to their lowest level since August 11 yesterday. The bullion remains close to a seven-week low as investors anticipate a quicker-than-expected interest rate hike. The strength of the dollar and U.S. Treasury yields also dampened the appeal of the yellow metal. The greenback is hovering close to a 10-month peak reached yesterday. Yields eased slightly but were still above the 1.5% level.

Spot gold is currently trading at $1,737.68 per ounce as of 0730 GMT.

OCBC Bank economist Howie Lee said today’s price gain is merely a technical bounce because there is very little bullish case right now for gold. He predicted bullion prices to slide to around $1,500 by the end of next year. By then, the Federal Reserve would have completed the tapering and already considering an interest rate hike.

DailyFX analyst Thomas Westwater agreed and said the MACD remains oriented lower and the RSI moderated above the oversold 30 level. He also mentioned that the bullion showed weakness through the ETF fund flows, which fell to their lowest level since May. ETF outflows are generally considered bearish.

Meanwhile, Fed Chair Jerome Powell said in his testimony before the U.S. Senate Banking Committee that the economy is still far from achieving maximum employment. It is one of the requirements for raising interest rates.

St. Louis Federal Reserve Bank President James Bullard warned that the central bank needs to take aggressive steps to address high inflation. These include two interest rate hikes in 2022. He agreed that inflation would ease on its own, but the Fed needs to ensure that it will not require restrictive policies that imperil economic expansion.

The central bank should also consider the decline in the consumer confidence index (CCI), which plunged to a seven-month trough in September. Economists forecast CCI to climb to 114.5, but it fell 5.9 percentage points to 109.3. The Commerce Department also reported that the goods trade deficit increased by 0.9% to $87.6 billion in August. This reinforced expectations for slower GDP growth. The trade deficit has dragged GDP growth for four consecutive quarters.

In physical trading, data from the Hong Kong Census and Statistics Department showed that China’s net gold imports via Hong Kong declined slightly in August.

In a related development, holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped to 990.03 tons on Tuesday. It is indicative of the current market sentiment.