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Gold Ends Below Critical $1,780 Support; Rotation to Dollar Could See More Loss

Published 08/17/2022, 03:53 PM
Updated 08/17/2022, 03:54 PM
© Reuters.

By Barani Krishnan

Investing.com -- Is the gold rally already over?

On paper, it appears so, after a critical support for futures of the yellow metal was broken on Wednesday, as a close below the $1,780 level in New York Comex trading pressured the spot price of bullion down too.

Yet, Comex’s benchmark December futures contract returned to the $1,780 level in after-hours trade, while the spot price pared losses too, indicating that direction for both would depend on how the dollar performed. The U.S. currency rebounded for a third time in four sessions on Wednesday.

“Swing traders as well as speculators seem to be unwinding longs in gold to back the recently-depressed dollar,” said Sunil Kumar Dixit, strategist at SKCharting.com. “Gold’s direction will depend pretty much on whether that rotational play into the dollar continues.”

December gold settled at $1,776.70, down $13 or 0.7%, to add to the 1.4% decline in two previous sessions. By 15:30 ET (19:30 GMT), it was at $1,781.50.

The spot price of bullion, more closely followed than futures by some traders, was at $1,766.55 by that same hour.

Until last week, gold was virtually on an unbroken rally, rising four weeks in a row in a technical rally after hitting a bottom of $1,696.10 in mid-July.

While that run seemed to snap on, gold saw a rush in late support after the Federal Reserve said in its July meeting minutes published on Wednesday that US rate hikes could slow at some point if inflation continues retreating from the four-decade highs seen earlier this year.

“Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time,” the Fed said in the minutes of its July 26-27 meeting where it referred to participants from its policy-making Federal Open Market Committee, or FOMC.

But the Fed also said that FOMC members were wary of overdoing rate hikes and felt that slowing rate hikes may be appropriate during softer economic conditions.

“Downside risks included the possibility that a further tightening in financial conditions would have a larger negative effect on economic activity than anticipated as well as the possibilities that the Russian invasion of Ukraine and the COVID-related lockdowns in China would have larger-than-expected effects on economic growth,” the central bank added

The Fed has carried out four rate hikes since March, bringing key lending rates from nearly zero to as high as 2.5% by July.

Inflation, as measured by the Consumer Price Index, or CPI, however, remains at more than four times the central bank’s annual target of 2%. The CPI grew at 8.5% during the year to July. Prior to that, the CPI expanded at its fastest pace in four decades, growing 9.1% during the year to June.

Traders are betting that the Fed will raise rates by just 50 basis points at its next meeting in September, versus bets previously for a 75 basis-point hike.

Latest comments

Finally free gold is coming...
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