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Gold Talking Points

Gold slips to a fresh monthly-low ($1188) as the U.S. dollar remains bid following the U.S. Non-Farm Payrolls (NFP) report, and the precious metal remains vulnerable to further losses ahead of the Federal Reserve’s meeting as it extends the string of lower highs & lows carried over from the previous week.

Image of daily change for major currencies

Gold Price Rebound Mired by String of Lower Highs & Lows

Image of daily change for gold prices

The rebound in global benchmark equity indices suggest the recent wave of risk aversion is behind us, and little signs of a flight away from fiat-currencies is likely to keep gold under pressure on the back of rising U.S. interest rates.

Even though the Federal Open Market Committee is widely anticipated to raise the benchmark interest rate to a fresh threshold of 2.00% to 2.25% on September 26, it seems as though Chairman Jerome Powell & Co. will continue to prepare U.S. households and businesses for higher borrowing-costs as the central bank largely achieves to its dual mandate for full-employment and price stability.

Image of Fed Fund Futures

In turn, a hawkish Fed rate-hike is likely to reinforce a long-term bearish outlook for gold, and Fed Fund Futures may continue to show market participants gearing up for another move in December as ‘many participants noted that it would likely be appropriate in the not-too-distant future to revise the Committee's characterization of the stance of monetary policy in its postmeeting statement.’ However, fresh projections from Chairman Powell & Co. are likely to influence the U.S. dollar as well as gold prices amid current forecasts for a longer-run interest rate of 2.75% to 3.00%, and more of the same from Fed officials may produce a mixed reaction as it curbs bets for an extended hiking-cycle.

Image of IG client sentiment

Until then, current conditions keeps gold vulnerable to further losses as the IG Client Sentiment Report shows retail sentiment still near extremes as 83.1% of traders are net-long bullion. The ratio of traders long to short stands at 4.93 to 1 as the number of traders net-long is 2.5% lower than yesterday and 6.5% lower from last week, while the number of traders net-short is 3.5% lower than yesterday and 11.0% lower from last week.

The skew in retail positioning provides a contrarian view to crowd sentiment, with recent price action reinforcing a bearish outlook as gold extends the series of lower highs & lows from the previous week.Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Gold Daily Chart

Image of gold daily chart
  • Lack of momentum to push back above the $1210 (50% retracement) to $1219 (61.8% retracement) area may bring the downside targets back on the radar, with first region of interest coming in around $1172 (61.8% retracement) to $1177 (78.6% retracement).
  • Need a break/close below the Fibonacci overlap to bring up the 2018-low ($1160), which sits just above the $1156 (61.8% retracement) hurdle.

For more in-depth analysis, check out the Q3 Forecast for Gold

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Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.