Gold prices rose on Wednesday as a slight drop in US bond yields bolstered expectations for faster-than-expected US rate hikes and pushed the dollar to a multi-month high. Spot gold rebounded from a one-month low on Tuesday, gaining 0.52% at time of writing to $1,744.36. U.S. gold futures were trading at $1,745, up 0.44%.
Jeffrey Halley: Gold could test $1,700 if it breaks the $1,740 support
“There is little bullish prospect for gold right now,” says Howie Lee of OCBC Bank. St states that they see gold to be around $1,500 by the end of 2022, especially as the tapering has completed its course by that time and the Fed has started to raise interest rates.
The dollar index has reached its highest level in about 11 months. The benchmark US 10-year Treasury yields eased slightly, but remained above 1.5%, the level last seen in June. Cryptocoin. com, Louis Federal Reserve Chairman James Bullard stated on Tuesday that high inflation may require more aggressive steps by the central bank, including two rate hikes in 2022. Meanwhile, Fed Chairman Jerome Powell said in Congressional testimony that the United States is far from reaching maximum employment, one of the central bank’s need to raise interest rates. Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA, notes in a note:
Gold, which broke the support at $1,740, could test $1,700 this week if prices continue to decline again.
Jeffrey Halley states that some hedging supports bullion for now. Meanwhile, in an indicator of sentiment, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 990.03 tons on Tuesday, compared to the previous day.
Will it support the upcoming US debt ceiling crisis?
Senior investment analyst Marios Hadjikyriacos highlights the following in a research note:
Gold held on surprisingly well, but is unlikely to emerge unscathed from rising real interest rates and a yield-based dollar.
Higher yields on government bonds compete with non-yielding precious metals among safe-haven investors. Gold fiadollaryellow managed to trim some of its losses after data on Tuesday showed the US consumer confidence index dropped to 109.3 this month. Peter Grant comments in the gold newsletter Zaner:
Against interest rates and the strength of the dollar, gold is still trading quite well from the lows established earlier in the year. This is partly because of the safe haven flows linked to the impending debt ceiling crisis.
“The combination of more uncertainty and a more dovish Fed will trigger interest in gold”
Washington policymakers struggled to raise the federal borrowing limit, or debt ceiling, before the government ran out of money to pay its bills in the coming months. Failure to raise the debt limit could shake up the markets and possibly push gold higher.
On Monday, Senate Republicans blocked a Democratic bill that would fund the government and increase the borrowing limit. The government’s current funding expires on 1 October. Demokradollarsars may be forced to use a budget reconciliation procedure in the Senate to pass a budget, including an increase in the federal debt ceiling, but that procedure could take two weeks.
US Treasury’s Janet Yellen clashed with Senate Republicans on Tuesday and warned that the nation would face a “catastrophe” unless Congress raised or suspended the debt ceiling. Peter Grant comments:
The longer the brinksmanship on the debt ceiling lasts, the more turbulent the markets are likely to be. In such a situation, it becomes more and more likely that the Fed will start tapering. The combination of more uncertainty and a more dovish Fed will trigger interest in gold.
Gold found little support on Tuesday from weakness in the US stock market. On the matter, senior analyst Jim Wyckoff comments in a daily note:
The safe-haven metal bulls have once again been frustrated as their risk-averse stance has not provided any price support to the markets.