Top Story

Gold faces meltdown as dollar bulls mull return

After rallying sharply on the back of a hawkish Federal Reserve yesterday, the dollar pulled back during the European session as some traders banked profit. Market participants wondered whether or not the FOMC meeting yesterday was a game changer as after all the Fed had already communicated its intent to start its balance sheet normalisation process this year. Thus, the news should have been at least partially priced in. What’s more, although the probability of another rate hike in December has risen, the FOMC’s updated dot plot projections showed that the median forecasts for interest rates were little changed from the last one issued in June. And while the Fed increased its 2017 GDP forecast slightly, it lowered its inflation projections. Still, with the Fed keen to tighten monetary conditions further, this should fundamentally support the dollar going forward. But this does not necessarily mean the greenback will rise against all currencies. A couple of other major central banks including the Bank of England and Bank of Canada have already dropped their dovish biases. Thus, even if the Dollar Index goes on to embark on a major rally from here, the dollar’s potential gains could be limited against both the British pound and Canadian dollar. Conversely, currencies where the central bank is still dovish are likely to underperform – such as the Japanese yen and Swiss franc. Perhaps the biggest loser in the dollar’s slipstream could be gold. The yellow metal of course does not pay any interest nor dividend, and costs money to store. What’s more, gold is priced in the dollar, so when the latter goes up in value, this tends to weigh on the former. The only hope for gold is if we see an unexpected fall in the dollar or a sharp rise in risk aversion, which would boost the appeal of the perceived safe haven commodity. Otherwise gold could fall back sharply given that it has also suffered a major technical damage in not being to hold its own above the key $1300 handle for too long. A potential break below the $1276 level – the last low prior to the rally that took out the $1300 resistance level – would more or less confirm a trend reversal in gold. 

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.