Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Recent interest-rate increases had less impact on gold prices than would normally be expected, with the precious metal holding a key support level despite rising bond yields and a stronger US dollar, according to the World Gold Council (WGC).
Gold initially weakened as investors prepared for the US Federal Reserve’s first interest-rate increase in three years. However, the increase failed to trigger a sustained sell-off, with the metal subsequently showing resilience, the WGC said in its weekly market report.
The Bank of Japan also raised interest rates during the week, while the Bank of England kept its policy rate unchanged. US government bond yields moved higher and the dollar strengthened.
Higher interest rates and bond yields generally weigh on gold because they increase the opportunity cost of holding the metal, which does not generate interest. A stronger dollar can also make gold more expensive for buyers using other currencies.
However, the WGC said the combined impact of the two interest-rate increases, rising yields and a stronger dollar failed to derail gold’s advance during the week.
The LBMA Gold Price PM ended the week to September 18 down 0.9% at $4,348 an ounce, leaving its year-to-date performance marginally negative at 0.4%. The decline reflected weakness early in the week, although the metal subsequently recovered some ground.
The WGC said buying appeared to be supported by “broad-based, structural conviction across every category of market participant”. If that assessment proved correct, gold could at times become less sensitive to changes in bond yields and the dollar.
Global gold exchange-traded funds recorded accelerating inflows across regions. Some investors exercised gold ETF options upon expiry, contributing to the inflows, while futures-options traders continued to increase their bullish positions ahead of expiry.
Net-long positions in Comex gold futures nevertheless declined, indicating some divergence in positioning across different categories of investors.
The WGC also observed that gold prices had climbed mainly during Asian trading hours. It said the precise reasons for the movement were difficult to determine, although the breadth of investor demand appeared to have helped the metal withstand pressure from monetary tightening.
From a technical perspective, gold successfully held support around its rising 55-day moving average, which stood at about $4,273 an ounce. The WGC said the performance raised the possibility that gold could establish a floor around current levels and begin another upward move within its recent trading range.
A further support level was identified at $4,231. A sustained fall below that point could increase downward pressure and expose gold to declines towards $4,203 and $4,149, followed by the broader support area of $4,000–$3,943.
On the upside, resistance was identified at $4,443 and at the 200-day moving average of about $4,541. Gold would need to close above the latter level to turn its near-term trend decisively higher, the report said.
The WGC cautioned that a continuing increase in US real yields could eventually become a headwind for gold. However, if higher yields also triggered a broader risk-off move in financial markets, demand for gold as a defensive asset could offset some of the downward pressure.
In a more recent technical assessment, Kamco Invest said gold closed at $4,286.24 an ounce and that its immediate direction remained unclear. It said a move above $4,320 could support an advance towards $4,400 and then $4,510, while a fall below $4,230 could lead to losses towards $4,150 and potentially the $4,000–$3,885 support zone.
Kamco Invest noted that medium-term and long-term investors can hold positions as long as gold stays above $4,170 and $3,500, respectively.
