Gold has suffered amid increasing global interest rates.
International gold prices dropped from a high of $2,078 a Troy ounce for the year to the $1,600 range, and gold ETFs in July saw their largest outflows in a year. International investment banks have slashed their price targets for gold. Short positions are still piling up in the near term, and if U.S. non-farm payrolls data on Friday night beats expectations again, gold could see another rout.
As of 16:00 on September 2, Beijing time, the international gold price was $1715 / ounce. Ubs informed journalists that gold could further adjust to $1,600 by the end of the year. Joe Perry, senior analyst at Sarasin Group, told journalists that if gold breaks below $1,670 and continues to drop, it could open up room for decreases to $1,557 and then $1,451.
Gold shorts increase
Comex gold futures rose as high as near $2,078 an ounce on March 8 in the wake of the Russia-Ukraine conflict, approaching a record high achieved in August 2020. A freeze in Russia's foreign exchange reserves, among other factors, caused safe-haven flows into gold and accelerated hoarding by global central banks, sending prices soaring 39bet-xì dách-phỏm miền bắc-tiến lên miền bắc-xóc đĩa-game bắn cá.
Nevertheless, gold prices continued to decline as the Federal Reserve slowly became aggressive in increasing interest rates and raised interest rates by 75BP in June and July. In general, real Treasury yields (nominal bond yields - inflation expectations) and gold prices move inversely because gold is a non-interest-bearing asset. The Fed increased interest rates, making the dollar stronger, real Treasury yields increased and gold less attractive.
Federal Reserve Chairman Jerome Powell's recent Volck-like remarks sent gold prices tumbling from around $1,800 to the $1,700 mark. "We have to keep raising rates until we're done," Mr Powell said at the annual gathering of global central banks in Jackson Hole on Friday.
Ubs said Mr Powell last week illustrated his determination to control inflation, with the global spot price of gold expanding from around $1,800 in mid-August to near $1,710 in recent days. Since mid-July, markets have been wishing for an early rate slash, but Powell has explicitly denied a shift in policy. The Fed's willingness to tolerate a weaker economy to suppress inflation means real interest rates will continue to increase, with real 10-year Treasury yields predicted to rise as high as 1 per cent in the coming months, supporting further currency appreciation. If inflation displays stickiness or a rebound, the Fed could respond more firmly.
Money market traders are now pricing in a 73% chance of a 75-bp hike in September. The federal funds rate is commonly anticipated to end the year at about 3.7 per cent.
Vanguard earlier informed journalists that the Fed would have to increase rates to 4% at least next year. That means gold's appeal may be declining. Earlier, many international investment banks' forecasts for gold prices for the year were around $2,000, but since the second half of the year, gold shorts have flowed out and appear to be piling up.
In the last reporting week, investors reduced their net long position in Comex gold by 16,000 lots to 127,000 lots, mostly by adding short positions, as gold prices dropped 1.6 percent to $1,747 an ounce, CFTC market holdings data showed. Meanwhile, holdings of gold ETFs backed by physical collateral have declined for 11 straight weeks.
Gold prices may continue to fall
Now, the consensus is that gold prices will continue to decline.
"We think gold could adapt further to $1,600 by the end of the year as US real interest rates and the dollar shift higher, but could recover early next year and hold steady at $1,650 in the first three quarters." Ubs said.
Investment demand for gold has declined, and jewellery demand is now struggling to adequately offset the impact of weak investment demand. Perry told journalists, hit by the possibility of interest rate rises, spot gold has been declining. On a daily chart, $1670 has been an essential support level, and prices have rebounded at this level about six times since April 2020. The previous two peaks arrived near $2075, perhaps forming a double top. If that level is ultimately broken, prices could complete a double-top pattern, with the sword at $1,285 in extreme cases, near the April 2019 low.
On Friday night, the US will release non-farm payrolls data for August. The consensus outlook is for 295,000 net nonfarm payrolls and a 0.4% monthly rise in average hourly earnings. In July, nonfarm payrolls increased more than 500,000, a five-month high, and average hourly earnings rose 0.5 percent, sending the dollar soaring. If the data exceeds expectations again, it may mean that the federal reserve is more likely to increase interest rates by 75BP in September, and further gains in the currency may continue to hit gold. The currency index has rallied throughout the second half of August and is now battling back against a 20-year high above 109.