In an environment punctuated by the looming shadows of rising inflation and potential rate hikes, gold, the age-old sanctuary for investors, seems to be losing its glint. The commodity, traditionally viewed as a reliable "safe-haven" during tumultuous economic times, has found itself at odds with a world veering towards the U.S. dollar in search of stability. On Monday, gold plunged to a sobering 7-month trough, barely holding its ground at the $1,800 support mark. Meanwhile, the dollar scaled to impressive 10-month highs. This shift signals a marked inclination of global investors gravitating towards the U.S. dollar, a currency seemingly promising shelter against the backdrop of economic instability riddling various nations.
Gold’s futures contract for December, a vital metric on New York’s Comex, settled the day at $1,847.20 per ounce—a dip of $18.90, translating to a 1% decline. Reflecting upon last week, the benchmark for U.S. gold futures plummeted by 4%, marking its most significant weekly descent since the near 6% nosedive experienced in June 2021. Ending the third quarter, Comex gold concluded with a 3% decrease, following a 4% slide in the preceding quarter.
In another perspective, the spot price of gold, often a favored measure for many traders over futures, stood at $1,831.93 by mid-afternoon ET, descending by $16.80 or 0.9%. The session witnessed its lowest ebb at $1,827.26, a figure alarmingly close to the trough of $1,809.40 recorded in March.
Sunil Kumar Dixit of SKCharting.com remarked on this trend, observing, "With the Dollar Index ascending sharply, spot gold is unable to muster any significant rally, consistently charting lower lows." He further added, "Anticipated support levels for spot gold hover between $1,815 to $1,808. However, this bearish momentum might wane if gold manages to breach the resistance between $1,850-$1,860."
A Renewed Emphasis on Inflation and Rate Hike Concerns
Tuesday saw the dollar escalating further. Fueling this surge were indications from several policy-makers at the Federal Reserve, suggesting a potential rate hike either in November or December. The primary objective? To rein in the headline inflation, steering it closer to the bank's ideal 2% annual target, a sharp contrast from the prevailing 3.7%.
Federal Reserve Governor, Michelle Bowman, expressed her willingness to endorse another rate increment in the upcoming meetings, conditional upon incoming data highlighting stagnancy or slow progression concerning inflation. Echoing her sentiments, Michael Barr, the Fed’s vice chair for supervision, inferred that the central bank might have to sustain elevated rates for an extended duration.
Despite inflation witnessing a considerable relaxation from its peak of over 9% annually in June 2022, the recent surge in oil prices has kindled anxieties. The majority of the global economy, comprised of non-oil producing nations, may once again grapple with economic strain as 2022 draws to a close.
The seemingly invincible sheen of gold is undergoing a test. As global economic factors converge, resulting in a quest for stability and certainty, the U.S. dollar emerges as the newfound beacon. Whether gold can reclaim its status as the preferred refuge in tumultuous times remains a question that only ensuing market dynamics can answer.