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Home » News » Gold Market Sees Consolidation Amid Shifting Economic Conditions

The gold market has entered a phase of consolidation, showing a slight decline after a strong rally in recent months. Since late July, gold futures surged nearly $300, rising from just below $2,400 per ounce to reach record highs. The lack of any significant correction during this rally highlighted the positive sentiment in the market. 

Gold’s rapid rise to record levels was driven by signs that inflation was cooling and moving closer to the Federal Reserve’s 2% target. As inflation eased, investors grew optimistic about the possibility of the Fed lowering interest rates sooner rather than later. This optimism pushed gold prices up by $300 from March to September. 

Even though the Federal Reserve was slow to cut rates initially, the bullish mood surrounding gold remained strong, allowing prices to continue climbing. The Fed eventually reduced rates by 50 basis points on September 18, which triggered another surge in gold prices. By September 26, gold hit an all-time high, with December contracts reaching $2,708. 

However, last week saw gold prices begin to ease as the U.S. dollar strengthened and treasury yields rose, putting pressure on the market. Over the past week, gold prices fell five out of seven trading days, but these declines have not yet reached the point of a significant correction. The most notable drop came on September 30, marking the largest decrease since gold hit its record high. 

As of 6 PM EDT, December gold futures were down by $11.30, settling at $2,661.90. This consolidation phase comes as market expectations for the Fed’s next moves begin to shift. Recent comments from Fed Chairman Jerome Powell have dampened hopes for another major rate cut in November. The CME FedWatch tool now shows an 84% chance of a smaller, 25-basis point cut, while a 16% chance remains for no cut at all. 

This shift in market sentiment is largely due to a stronger-than-expected jobs report. The U.S. economy added 254,000 jobs, far surpassing the 140,000 forecasted, and the unemployment rate fell to 4.1%, adding complexity to the economic outlook. 

While gold’s recent rally has not seen any major corrections, many experts believe the market is due for one soon. However, the situation could change depending on geopolitical events, such as a potential retaliation by Israel against Iran following last Tuesday’s attack. U.S. President Joe Biden has stated that Israel has the right to respond, though he urged a proportional response. Such developments could impact global markets, including gold. 

Recent news

Gruyere increases production in pursuit of gold

Gold Prices Surge to Record High, Cross $2,720 Amid Global Uncertainty

Gold prices saw a significant rise, reaching around $2,720 in the early hours of Monday's Asian trading session.  This surge in demand for gold, a well-known safe-haven asset, is driven by heightened global uncertainties, including concerns about the US election and escalating geopolitical tensions.  Ongoing conflicts in the Middle East and potential economic challenges in China have also contributed to the rise in gold prices. Investors are turning to gold as a reliable option amidst these crises.  Alexander Zumpfe, a metals trader at Heraeus Metals Germany, commented, “With the war between Israel and Hezbollah intensifying, investors are seeking refuge in gold. Additionally, uncertainty over the US presidential election and possible monetary easing from the Federal Reserve are pushing gold prices higher.”  Expectations of further interest rate cuts by the US Federal Reserve are also supporting the precious metal’s value. The Fed recently lowered interest rates for the first time in over four years, and there is growing anticipation for additional cuts. According to the CME FedWatch Tool, there is a 90% chance of another rate reduction in November. Lower rates often increase the appeal of non-yielding assets like gold.  However, economic concerns in China could limit gold’s upward momentum. China, the world's largest consumer of gold, experienced slower-than-expected growth in its economy during the third quarter of the year. The National Bureau of Statistics reported a GDP growth of 4.6% for Q3, slightly below their target of 5%. This slowdown could impact global demand for gold.  Despite these challenges, gold continues to attract attention as a safe investment option in these uncertain times. 

Gruyere increases production in pursuit of gold

Gold Prices Steady as U.S. PPI is Moderate in September

The gold market remained stable as new data indicated that U.S. producer prices experienced moderate pressure in September.  According to the U.S. Labor Department’s report on Friday, the Producer Price Index (PPI) rose by 0.1% last month, following a 0.2% increase in August. This slight increase matched economists' predictions, who also expected a 0.1% rise.  Over the past 12 months, overall wholesale inflation rose by 1.8%, exceeding the expected 1.6%, but slightly lower than August’s revised figure of 1.9%. Meanwhile, core PPI, which excludes volatile food and energy prices, increased by 0.2% in September. This was in line with expectations and followed a 0.3% rise in August. The annual core PPI rose to 2.8%, above forecasts of 2.7% and August’s 2.4% figure.  After the 8:30 AM EDT data release, gold prices briefly spiked to session highs. Spot gold reached $2,650.19 per ounce but quickly returned to $2,646.60, marking a 0.63% gain for the day.  PPI is considered a key indicator of inflation since rising costs for producers are often passed on to consumers. Analysts suggest that if producer prices continue to ease, along with improving Consumer Price Index (CPI) inflation, the Federal Reserve could feel confident in reducing interest rates in upcoming meetings. This would likely support gold's long-term upward trend. 

Gruyere increases production in pursuit of gold

Gold Prints New Record Peaks As Fed Rate Cut Expectations Surge

​​Key Takeaways:

  • Record Gold Prices: Gold has surged to a record high of $2,586 per ounce, driven by expectations of a Federal Reserve (Fed) interest rate cut.
  • Fed Rate Cut Expectations: The market is increasingly betting on a 50 basis point rate cut, with the probability rising from 27% to 43%.
  • Impact on Treasury Yields and Dollar: Lower US Treasury yields and a weakened US Dollar Index (falling to 101.09) have further fueled gold’s rally.
  • Gold ETFs Inflows: Global gold exchange-traded funds (ETFs) saw four consecutive months of inflows, reflecting strong investor interest.
  • Consumer Sentiment and Inflation Data: Improved consumer sentiment and slightly moderated inflation expectations are supporting speculation of a more aggressive rate cut.
  • Technical Indicators: Gold’s price momentum remains strong, with the Relative Strength Index (RSI) showing bullish signals. Resistance lies at $2,586, while key support levels are at $2,550 and $2,500.
  Gold prices have reached unprecedented levels, climbing to a new all-time high of $2,586 per ounce. This remarkable surge has been driven by escalating expectations of a significant interest rate cut by the Federal Reserve (Fed). Market sentiment is leaning heavily towards the likelihood of a 50 basis point reduction, with recent data indicating a 43% chance of this substantial rate cut occurring. This optimism about a more substantial Fed rate cut has led to a dramatic drop in US Treasury yields and a decline in the US Dollar Index, which has fallen to 101.09. These factors combined have propelled gold’s price upward. As of the latest update, gold trades at approximately $2,582, reflecting an increase of nearly 1% from previous figures. The increased expectations for a substantial rate cut by the Fed have been influenced by a combination of factors. According to the CME FedWatch Tool, traders have raised the probability of a 50 basis point rate cut from 27% to 43%, while the chance for a 25 basis point cut has decreased from 73% to 57%. This shift in market expectations was partly triggered by a report from Nick Timiraous of The Wall Street Journal and comments from former New York Fed President William Dudley, which intensified speculation about a more aggressive monetary policy adjustment. The impact of these expectations is evident in the movement of US Treasury yields and the strength of the US Dollar. The decline in Treasury yields has undermined the Greenback, leading to a drop in the US Dollar Index by 0.15% to 101.09. This decline in the dollar's value has further supported the ascent of gold prices. In addition to the shifting expectations regarding Fed policy, global exchange-traded funds (ETFs) that hold gold have seen substantial inflows. Data from the World Gold Council revealed that gold ETFs experienced their fourth consecutive month of inflows in August. This sustained interest from global investors has contributed to the upward momentum in gold prices. The positive sentiment surrounding gold is also supported by recent economic data from the US. The University of Michigan's Consumer Sentiment Index for September showed an improvement from August's reading, rising from 67.9 to 69.0. This figure surpassed the anticipated 68, suggesting a better-than-expected consumer outlook. Additionally, inflation expectations have moderated, with one-year expectations decreasing from 2.8% to 2.7%, while long-term expectations increased slightly from 3% to 3.1%. These shifts in consumer sentiment and inflation expectations have fuelled speculation about potential rate cuts by the Fed. The US economic calendar also revealed mixed signals regarding inflation and employment. The Producer Price Index (PPI) data for August, released by the US Bureau of Labor Statistics, presented a mixed picture. Concurrently, the number of Americans filing for unemployment benefits rose, aligning with expectations and surpassing the previous week's figures. Market data from the Chicago Board of Trade suggests that the Fed might reduce rates by at least 98 basis points this year, a decrease from the 108 basis points projected a day earlier. This adjustment in market expectations reflects ongoing uncertainty and speculation about future monetary policy. From a technical perspective, gold's price trend remains robust, supported by strong demand and positive momentum. The Relative Strength Index (RSI) is currently bullish, although it has not yet reached the 80 level often considered “overbought” by traders. As a result, the path of least resistance for gold remains upward. The immediate resistance level to watch is the peak of $2,586 reached on September 13. If gold can surpass this level, the next target could be the $2,600 mark. On the downside, if sellers manage to drive gold prices below $2,550, they could potentially regain control. Key support levels to monitor include the August 20 high of $2,531 and the significant $2,500 mark. Breaking below these levels could signal a shift in momentum. Overall, gold's recent record highs reflect a confluence of factors, including changing expectations for Fed monetary policy, fluctuations in the US dollar, and ongoing global interest in gold as a safe-haven asset. As the market adjusts to these dynamics, gold’s price is likely to remain volatile, with potential further gains if the Fed adopts a more dovish stance.

Conclusion

Gold’s historic rise is underpinned by growing market expectations for a significant rate cut by the Fed, weakening the US dollar and boosting investor demand for the precious metal. As economic uncertainty and changing monetary policy expectations continue to evolve, gold prices could remain volatile, with the potential for further gains if the Fed adopts a more dovish stance. Investors are closely watching key technical levels, with the $2,600 mark on the horizon if bullish momentum persists.