“The widely regarded “safe-haven” asset is currently not fulfilling its role as the global economy grapples with the potential for increased inflation and interest rate hikes.
On Monday, the price of gold dropped to a seven-month low, barely holding onto the $1,800 support level. Meanwhile, the U.S. dollar reached a ten-month high, indicating investors’ preference for its stability amidst challenges faced by other global currencies.
The most actively traded gold futures contract on New York’s Comex, scheduled for December, closed at $1,847.20 per ounce, marking a 1% decline of $18.90 for the day. Last week, the U.S. gold futures benchmark witnessed a substantial 4% decrease, the largest weekly drop since a nearly 6% decline in the week ending June 11, 2021. Comex gold also ended the third quarter with a 3% decline, following a 4% drop in the second quarter.
The spot price of gold, closely monitored by some traders, stood at $1,831.93 at 14:10 ET (18:10 GMT), representing a 0.9% decrease of $16.80. The session’s lowest point reached $1,827.26, the lowest level since hitting $1,809.40 in March.
Sunil Kumar Dixit, the chief technical strategist at SKCharting.com, remarked, “As the Dollar Index continues to surge, gold fails to find any signs of recovery and keeps establishing new lower lows, with an additional intraday drop of $21 from $1848 to $1827.” He also noted that the next projected support for spot gold lies between $1,815 to $1,808, with the possibility of bearish pressure easing if a rebound pushes through the initial resistance at $1,850 to $1,860.
On Tuesday, the U.S. dollar gained strength as several Federal Reserve policymakers hinted at the possibility of another interest rate hike either in November or December. This move is aimed at controlling headline inflation and bringing it closer to the central bank’s target of 2% per annum, given the current rate of 3.7%.
Fed Governor Michelle Bowman expressed her willingness to support another interest rate increase at a future meeting if incoming data indicates a slowdown in progress towards controlling inflation. Michael Barr, the Fed’s vice chair for supervision, also suggested that the central bank might need to maintain higher interest rates for an extended period.
While inflation has moderated significantly from its peak of over 9% per annum in June 2022, concerns are arising due to the recent surge in oil prices. This surge has raised worries that non-oil producing countries, which constitute a significant portion of the global economy, will face substantial challenges as the year comes to a close.”
