ECM: Gold Prices Undermined By Dollar Gains, Testing Support Again
Although gold has been broadly resilient over the past 24 hours, the combination of a stronger dollar and rising bond yields has pushed prices lower with another test of support at the US open.
There has been no significant impact from economic data releases over the past 24 hours with gold prices dominated by trends in the dollar and interest rates.
The US currency continued to gain support during the New York session on Tuesday with the trade-weighted index advancing to the highest level for eight months. US 10-year bond yields also held above 1.75% with the combination of a strengthening dollar and higher yields having an important impact in curbing gold support.
Prices were unable to re-test the $1,260 per ounce area with a series of slightly lower peaks and a fresh test of support close to $1,250 early in Wednesday’s Asian session. Support on approach to this key level did hold, which helped underpin sentiment, although rallies remained extremely limited as the dollar held a firm tone.
US yields also edged higher again on Wednesday with the 10-year yield at fresh four-year highs just above 1.78%, which sapped demand for precious metals.
The immediate US political risk premium remained lower, which also tended to undermine gold, although a weaker tone in equity markets could provide net support.
Gold prices edged lower to re-test support near $1,250 into the US open. Markets are wary of potential EUR/USD sell stops if there is a break below 1.1000, which could also trigger sharp selling in gold.
The minutes from September’s Federal Reserve FOMC meeting will be analysed closely later on Wednesday, especially given the strong divisions within the committee and three voters dissenting from the decision not to raise interest rates. The debate on tightening will be important with a particular focus on the potential for a rate increase over the remainder of 2016. Comments on the longer-term outlook will also be important.
Given that Fed Funds futures have already priced in a 70% chance of a December move, gold prices could be resilient unless there is a very hawkish stance, although there will also be wariness of stops below the $1,250 level.
