Gold Falls as Bets on Fed Cut Waver With Data Gap Clouding View
Gold slipped as optimism that the Federal Reserve will cut interest rates next month was shook by ongoing uncertainty over economic data, following the longest government shutdown in US history.
Bullion dipped below $4,060 an ounce, paring earlier gains and trimming its first weekly advance in a month. Silver also retreated, but was still up by about 5% for the week.
Expectations for Fed cuts were scaled back as the week progressed, with Fed officials showing little conviction for reducing borrowing costs. Federal Reserve Bank of Minneapolis President Neel Kashkari said he remains undecided on next month’s rate decision, while his counterpart for Cleveland, Beth Hammack, argued for rates to be kept steady. Higher interest rates typically make non-yielding bullion relatively less appealing to investors.
Traders are now split on the likelihood of a rate cut in December, after all but pricing in a quarter-point reduction less than a month ago. Attention now turns to comments from three Fed officials due to speak Friday, including voting member Jeffrey Schmid. Traders also await a schedule for the release of economic data that was delayed by the US shutdown.
Some Fed officials “had already signaled that they would feel uncomfortable about further interest rate cuts without reliable data on the labor market and inflation,” Thu Lan Nguyen, head of currency and commodities research at Commerzbank AG, wrote in a note Friday. “There is therefore a risk that a majority will decide against an interest rate move in December for the time being, until the picture becomes clearer again.”
Gold’s volatility this week may have been amplified by a so-called “gamma squeeze,” a technical pattern whereby dealers who sold cheap options are forced to buy bullion futures as a hedge. In a thin market, any sudden rise in price can increase the urgency to buy and snowball into a surge even without fresh demand from physical buyers.
The precious metal’s recovery this week fits this dynamic, Daniel Ghali, a strategist from TD Securities, said in a note on Thursday, with a recent drop in over-the-counter trading volumes making the market easier to push around. “This liquidity vacuum may actually have been key for setting up a gamma squeeze, resulting in a second shock wave higher this week,” he said.
Though it has retreated from a record above $4,380 last month, gold is still up about 55% this year and remains on target for its best annual performance since 1979. Central banks have stepped up purchases, seeking a store of value and asset diversification, while investors have piled into the metal as a hedge against growing fiscal unease in some of the world’s biggest economies.
Gold fell 3% to $4,058.74 an ounce as of 1:31 p.m. in London. The Bloomberg Dollar Spot Index was little changed. Silver declined 3% to $50.78 an ounce, while platinum and palladium also slid.
Source : Bloomberg.com
