Risk-On Market Sentiment and Dollar Strength Take Gold Below $1800

Although rising inflationary concerns did not diminish, a robust U.S. stock market coupled with dollar strength took gold lower, back below $1800. As of 5:45 PM EDT gold futures basis, the most active December 2021 contract is currently trading at $1794.10, a net decline of $12.70 on the day.

Most analysts interpret today’s price decline as modest profit-taking. On a technical basis, gold pricing is still technically bullish with one caveat; gold prices need to stay above $1780.

According to Bob Haberkorn, senior market strategist at RJO Futures, “The stronger-than-expected move in equities, with a lot of earnings on deck, is taking a bit off gold this morning.” Furthermore, according to Reuters, Haberkorn said some gold traders could be booking profits from the recent upside move, with equities being as strong as they are.

It is still likely that inflationary fears will continue to support gold as market participants await more input from key central bank meetings, including the ECB on Thursday and the Bank of Japan. Exactly one week from today, the Federal Reserve will begin the November FOMC meeting. It will be upcoming talks by the European Central Bank, the Bank of Japan, and the Federal Reserve that has the power to bring gold back above $1800.

Next week’s FOMC meeting will contain important insight into how the Federal Reserve plans to deal with the current rising inflationary pressures. Whether or not the Fed announces when they will begin to taper, and most importantly, when the Fed will initiate “lift-off” and begin to normalize interest rates will be a key and critical element that shapes the future direction of gold. The most bullish outcome for gold regarding the upcoming FOMC meeting is if the Federal Reserve postpones the onset of tapering their asset purchases. Because currently, there are no expectations that they will raise interest rates through the remainder of 2021.

Last Friday, Chairman Powell’s statement sparked this last leg of the rally in gold that began at the beginning of October. He acknowledged that the Federal Reserve needed to re-calibrate its timeline on both tapering and interest rate normalization. This will continue to be a double-edged sword for gold as higher inflation rates continue to be the most prevalent bullish factor that has taken gold higher. The possibility that the Fed will accelerate the timeline for interest rate normalization on the other hand, continues to be a significantly bearish factor for gold.

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Wishing you, as always, good trading and good health,

Gary Wagner