Fundamental Forecast for Gold: Bearish
- Gold Selling Resumes, ETF Holdings Hit Lowest Since Late July
- Forex Correlations: US Dollar Shorts Attractive Proxy to Crude Oil Longs
- Guest Commentary: Gold & Silver Prices Daily Outlook 09.28.2011
Gold traded heavy during the last week of September and the bearish sentiment underlying the bullion may carry into the following month as market participants diversify away from the precious metal. The Chicago Mercantile Exchange’s (CME) announcement to raise gold margin requirement by 21% sapped demands for the bullion, which pushed the spot price down to a fresh monthly low of $1532.72/oz, and the precious metal may continue to give back the sharp rally from earlier this year as the U.S. dollar appreciates against its major counterparts.
Indeed, the recent strength in the U.S. dollar dampens the appeal of gold and market participants may continue to move into the reserve currency as the Federal Reserve refrains from carrying out another round of quantitative easing. However, speculation for QE3 may resurface should the fundamental developments scheduled for the following week reinforce a weakened outlook for the world’s largest economy. As the U.S. Non-Farm Payrolls report comes into focus, we are likely to see the greenback consolidate ahead of the market-moving release, but a protracted recovery in the labor market may weigh on the reserve currency as it instills as weakened outlook for future growth. In turn, Fed Chairman Ben Bernanke may keep the door open to expand monetary policy further and the central bank may carry its easing cycle into the following year as the U.S. faces an increased risk of a double-dip recession.
A short-term consolidation in the USD could spur a rebound in gold, and we may see the bullion trade higher in the days ahead as the relative strength index continues to hold above oversold territory. In turn, the precious metal may work its way back towards $1700/oz, but the near-term outlook for gold remains fairly bearish as we expect the U.S. dollar to appreciate further. – DS