Crowded Fundamentals, Gold's Directional Tug-of-War
Gold prices held steady after three consecutive days of declines, as hopes for a Fed interest rate cut next month faded. On Tuesday morning, gold was trading around $4,030 per troy ounce. Investors and policymakers are still awaiting a slew of economic data releases following the longest US government shutdown in history, while some Fed officials have warned against rushing to lower borrowing costs again. In the interest-rate swaps market, the chance of a December rate cut has now dropped to less than 50%, compared to less than a month ago when the market was almost fully pricing in a quarter-point cut. This weighs on the outlook for gold, which offers no yield and typically benefits from falling interest rates.
The first clues to the state of the US labor market will emerge on Thursday, when the Bureau of Labor Statistics (BLS) is scheduled to release its September jobs report. This data is more "backward-looking" than usual, but remains crucial in illustrating the health of the world's largest economy as Washington emerges from its six-week shutdown. With official data delayed, it's increasingly difficult for market participants to assess whether the economy is weak enough to force the Fed to cut interest rates again in the near future.
Although gold prices have corrected, the precious metal is still up around 54% this year and is on track for its best annual performance since 1979. Investors have been buying gold as a hedge against growing fiscal concerns in several major economies. Furthermore, central bank gold purchases have been a key driver of gold's rally, reaching a record high above $4,380 per troy ounce last month. This combination of factors has kept long-term interest in gold strong, even as short-term volatility is being pressured by uncertainty over US interest rate policy.
According to analysts at Goldman Sachs Group, the trend of central bank gold purchases is likely to continue into November. They estimate central banks purchased around 64 tons of gold in September, more than triple the amount purchased in August, with China alone adding around 15 tons. "We continue to see high gold accumulation by central banks as a multi-year trend, as they diversify reserves to protect against geopolitical and financial risks," wrote a team of analysts including Lina Thomas. At 8:19 a.m. Singapore time, gold edged down 0.3% to $4,032.42 per troy ounce. The Bloomberg Dollar Spot Index was flat, while silver and palladium weakened and platinum strengthened slightly. (asd)
Source: Bloomberg.com
