Gold fell as investors considered whether tightening financial conditions may have reached a peak following dovish commentary from Federal Reserve officials, despite the conflict in the Middle East continuing to roil markets.
(Bloomberg) — Gold fell as investors considered whether tightening financial conditions may have reached a peak following dovish commentary from Federal Reserve officials, despite the conflict in the Middle East continuing to roil markets.
The precious metal dropped as much as 0.5% after jumping 1.6% on Monday, the most since May, as haven demand surged on the back of Hamas’s shock attack on Israel over the weekend. Some profit taking may be behind Tuesday’s move lower.
“Risk appetite improved,” said Bart Melek, global head of commodity strategy at TD Securities. “There’s also a technical component” to bullion’s drop, he added. “It looked like the market wasn’t that comfortable taking it lower” from a support level of around $1,811 an ounce.
The precious metal has seen support in recent days from a shift in mindset over the rate outlook. US policymakers are coalescing around the idea that the recent surge in US Treasury yields — which reversed on Tuesday — may substitute for additional increases in their benchmark interest rate. Higher rates are generally negative for non-interest bearing gold.
“Now that it looks like the Fed is signaling a peak in rates is likely in place, geopolitical risks and tight financial conditions suggest the Fed won’t need to deliver another rate this year,” said Ed Moya, senior market analyst at Oanda. “If the economy reaccelerates in early 2024, the risk of tightening may come back, but right now it seems gold is out of the danger zone.”
The metal’s longer-term performance will depend on whether there is deeper economic and financial fallout from the Middle East crisis, RBC Capital Markets LLC strategist Christopher Louney said in a note. The bank in September raised its base-case outlook for gold on a view that monetary policy will eventually turn as economic growth slows.
“Amidst oil’s price gains, we also highlight the potential implications that related price inflation and heightened uncertainty could have for the Fed and thus gold,” he wrote. “Given our current gold outlook and the move higher in risks, we may have seen a quarterly low already.”
Spot gold declined 0.1% to $1,859.56 an ounce as of 3:28 p.m. in New York. Comex gold for December delivery gained 0.6% to settle at $1,875.30.
–With assistance from Sybilla Gross.
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