Gold has been one of the best-performing assets this year. Fueled by expectations of a major interest rate cut by the Federal Reserve and fears of further US government asset seizures, the metal has been pushed to record highs and has emerged as one of the best-performing assets through the first three quarters of the year, even outperforming US stocks.
But the gold rally won’t last forever. Over the past few weeks, gold futures GC00 have traded sideways, according to Market Watch.
Christopher Watling, market strategist at Longview Economics, said rising US bond yields and a sudden surge in the DXY index of the US dollar have limited the upside momentum of gold.
Better-than-expected US economic data has led markets to reduce expectations of aggressive rate cuts by the Fed, which Watling said has put downward pressure on gold prices.
According to Watling, in addition to the changing interest rate and USD outlook, gold is also vulnerable to downside from a positioning, sentiment and model perspective.
Speculative positioning is heavy, sentiment is bullish and technical indicators are at or near sell levels, he said.
This week’s inflation report, as well as upcoming data on the US labor market, are being closely watched to reassess Fed interest rate expectations. September’s consumer price index will be released on October 10, along with the latest weekly jobless claims.
Reuters also forecast that gold is set to fall the most in more than a month as bets on a major Fed rate cut ease.
Gold prices fell more than 1% on October 8 and were on track for their biggest percentage drop in 1-1/2 months as recent U.S. jobs data dampened expectations for a bigger interest rate cut, while the market awaited the minutes of the latest Fed policy meeting for fresh cues.
Spot gold fell 1.1% to $2,614.49 an ounce at 17:59 GMT on October 8 (00:59 on October 9 Vietnam time), falling for a fifth consecutive session and further from the record peak of $2,685.42 on September 26.
"Gold has been pulling back over the past few days due to the change in the outlook for interest rates," said David Meger, director of metals trading at High Ridge Futures, adding that bond yields have risen and the idea of further rate cuts has been quashed.
Markets have priced in a 50 basis point rate cut at the Fed's November meeting following last week's strong jobs report. Now, forecasters see an 87% chance of a 25 basis point cut, according to the CME FedWatch tool.
Gold is valued for its stability when used as a hedge against geopolitical and economic risks.
Global gold exchange-traded funds recorded their fifth consecutive month of inflows in September as funds listed in North America increased their holdings, the World Gold Council said on October 8.
