- Gold is finding new supply and remains below 2021 lows first broken on Friday.
- The resurgence in USD demand is proving to be a key factor exerting downward pressure.
- The risk impulse is helping limit losses ahead of key central bank meetings this week.
Gold maintains its offered tone throughout the first North American session and is currently near the $1,665 region, just above the daily low. A stronger US dollar would weigh on the dollar-denominated commodity, which broke below 2021 lows in the $1,670s. This level provided stable support on several touches and its penetration last week was a bearish sign. Today’s pullback to the 21 lows may be like an air-kiss before a deeper descent, potentially giving traders the perfect low-risk short entry opportunity. . It all depends on further price action and traders should remain vigilant.
Expectations that the Federal Reserve will stick to its aggressive rate hike path to rein in uncomfortably high inflation continue to support the greenback. A drop in near-term inflation expectations for U.S. consumer prices to a one-year low in September forced investors to cut bets for a full 100 basis point Fed rate hike. base. However, the US central bank is expected to deliver at least 75 basis points at the end of a two-day monetary policy meeting on Wednesday, which continues to support the greenback.
This, in turn, continues to support high US Treasury bond yields. This, combined with the prospect of more rapid interest rate hikes by other major central banks, is further helping to ward off flows of the unproductive yellow metal. That said, the prevailing risk aversion environment, exemplified by a further decline in equity markets, offers some support for traditional safe-haven assets. This turns out to be the only factor providing some support for gold and limiting the downside, at least for now.
Investors also appear reluctant to place aggressive bets and prefer to sideline ahead of a flurry of central bank meetings this week. The Fed is expected to announce its decision on Wednesday, which will play a key role in influencing near-term dollar price dynamics. The Bank of Japan (BoJ), the Swiss National Bank (SNB) and the Bank of England (BoE) will follow on Thursday. This, in turn, should help investors determine the next stage of a directional move for gold.