gold prices: Losing shine? Investment demand for gold plummets to four-year lows

COMEX Gold costs skilled a major downturn, marking their most substantial weekly loss in months. The yellow metallic slid beneath the vital $1,900 per troy ounce threshold, primarily in response to a pointy surge in US treasury yields. This surge in yields elevated the chance price of holding gold.

At its September coverage assembly, the US central bank-maintained rates of interest at their present ranges however supplied clear indications of one other charge hike earlier than the yr’s finish. Furthermore, the central financial institution signalled fewer charge cuts for the next yr than beforehand anticipated. Financial information launched in the course of the week pointed in the direction of the resilience of the US financial system. Notably, new orders for manufactured sturdy items unexpectedly rose by 0.2% month-on-month in August 2023. Moreover, unemployment claims remained close to a seven-month low, and US GDP progress for Q2 2023 was confirmed at 2.1%, all contributing to the Federal Reserve’s hawkish stance.

Additional impacting gold costs, the S&P CoreLogic Case-Shiller 20-city house value index within the US recorded a 0.1% year-on-year enhance in July 2023, marking the primary rise in 5 months. This rebound in US house costs, coupled with hovering power costs, raises potential upside dangers for the inflation outlook.

Amid expectations of elevated treasury gross sales, rising debt, a hawkish Federal Reserve, and better-than-expected financial information, the yield on 10-year US treasury notes surged to a 16-year excessive of 4.68% on Thursday, exerting downward strain on treasured metallic commodities.

Funding demand for gold additionally waned as SPDR Gold ETF holdings plummeted to their lowest ranges in 4 years. This decline in holdings coincided with the spike in treasury yields. Hawkish feedback from Federal Reserve officers, coupled with sturdy financial information and prospects of a comfortable financial touchdown within the US, led traders to contemplate the potential for greater rates of interest. The September Abstract of Financial Projections (SEP) launched after the FOMC assembly revealed a really hawkish upward revision to the fed funds charge projections for 2024 and 2025, with policymakers anticipating fewer charge cuts, additional fuelling the rise in yields.

Federal Reserve officers have been vocal about their intention to implement extra rate of interest hikes to deliver inflation again according to the two% goal. Fed Chair Jerome Powell emphasised the significance of the Federal Reserve’s skill to affect financial choices and anchor inflation expectations throughout a city corridor occasion in Washington.

Within the upcoming week, the US financial calendar is full of key occasions, together with ISM PMIs, labor information, and feedback from Fed Chair Jerome Powell. Powell is anticipated to reiterate the need of sustaining greater charges for an prolonged interval, which may doubtlessly immediate additional outflows from ETFs. Nevertheless, incoming financial information might be carefully scrutinized, and any indicators of financial weak spot could present some assist. In any other case, gold costs could proceed to say no, pushed by a stronger greenback and elevated yields.By way of value motion, spot gold in greenback phrases has breached a vital assist degree close to $1,884 per troy ounce, concluding the week at its lowest level since March 2023. It has additionally penetrated a wedge sample, indicating the potential for additional weak spot, with a attainable extension right down to $1830 per troy ounce, supplied that the support-turned-resistance degree of $1,884 per troy ounce holds on a weekly closing foundation.

(The creator is Vice President, Head Commodity Analysis at Kotak Securities)

(Disclaimer: Suggestions, strategies, views and opinions given by the consultants are their very own. These don’t characterize the views of Financial Instances)