Gold price sees healthy pull back ahead of FOMC minutes
December gold futures last traded at $2,001.40 an ounce, down 0.58% on the day.
George Gero, managing director at RBC Wealth Management, said that investors could expect to see more volatility in the gold market as the trading activity normalizes after the months-long buying frenzy.
“The dollar is trying to stabilize, but buyers await dips in gold as none of the usual global worries have eased,” he said.
Analysts at Commerzbank said that they also see technical selling as a healthy consolidation for the precious metal.
“Investors appear to be taking profits following the steep $80 price rise since the start of the week,” they said in a note Wednesday. “Gold is not able to regain its record high from nearly two weeks ago quite so quickly, in other words. The fact that it is taking somewhat longer can only be healthy in terms of its future price performance.”
The selling pressure in gold comes as the U.S. dollar appears to have found some support after falling to its lowest level in more than two years earlier in the week. The U.S. dollar index last traded at 92.35 points, up 0.15% on the day.
The latest round of profit taking in gold also comes as the S&P 500 pushed to new all-time highs. Some analysts have said that growing risk appetite could weigh on the precious metals market in the near-term.
However, analysts have said that the rally in equities could be a positive factor for gold in the long-run. In a world of low interest rates, analysts have said that gold is an attractive risk hedge for equity markets.
“Even though the actual risk rally caps the short-term appetite in the yellow metal, the cheapening U.S. dollar, soft US yields and mounting inflationary worries remain supportive of a strong gold demand in term,” said Ipek Ozkardeskaya, market strategist at Swissquote Bank SA. ”Yet, investors aren’t sure whether the historical high prices are a good entry point for hedging their risk positions. Price retreats however should attract dip buyers.
Some market analysts aren’t ruling out further equity market gains in the near-term even as they urge investors to use some caution at current levels.4
“Looking back at past instances when the benchmark index broke even following a bear market, the S&P 500 has historically added another 4.5 percent over the ensuing six months, with the next peak arriving after climbing 71 percent on average,” said Han Tan, market analyst at FXTM.
“Still, this does not mean that US equities are now immune from further corrections or a new bear market. The lessons from 1989 and 2007 show that US equities can enter another bear market within 12 months, despite fully exiting the previous bear market. In other words, further gains are not a foregone conclusion,” he added.
Although there are expectations that gold has entered a consolidation phase around $2,000, many still aren’t ruling out higher prices in the near-term. All eyes will be on the Federal Reserve this afternoon as the central bank releases the minutes from its July monetary policy meeting. Analysts and economists have said that any comments hinting at further monetary policy action to support the faltering economy will be positive for gold.
Looking at the technical picture, analysts at Citi Index said that they are closely watching resistance at $2,015 an ounce.
“A close above $2,015 would turn the technical outlook to positive and trigger an advance to the resistance levels at $2,075 and $2,140,” the analyst said in a report Tuesday. “On the other hand, failing to stand above $2,015 would continue the range trading and may return to the support level at $1,910.”