Price of Gold Remains Convoluted

Published on: 10/30/18 9:27 AM

Tags: forex brokers, Forex market, Forex News, trading market

The changing landscape over a broad range of economic conditions has led to uncertainty in the gold market and its future.

Over the course of the last trading week, gold boasted moderate gains, climbing from just under $1900 to end the week rally at just a little above $1200. However, rising bond yields combined with a rout in the US equities market complicated the outlook on gold.

In a usual market, rising bond yields spell bad news for gains in gold. Investors shy away from the precious metal when trying to capitalize on the advantages of rising rates. The price of gold tends to drop as investors demand less of it. The 10-year US treasury yield is now at 3.24 percent, its highest in seven years. This high yield would suggest that gold prices might enter a bearish market. However, the equity rout accompanying the rising bond yields is leading to a bit of unclarity as to where gold is headed.

Because of the conflicting driving forces, the forecast for gold is mixed heading into the coming trading week. Financial experts are predicting that gold might trade sideways as it finds its landing place.

Domestic market news

In other domestic market news, the US Dollar (USD) continued to post gains for the second straight week as a result of growing certainty that the Federal Reserve will raise interest rates at the upcoming quarterly meeting in December. In a recent statement, Federal Reserve Chairman Jerome Powell hinted that rates may be forced to increase beyond a level of neutrality. As the monetary policymaking arm of the Fed, the Federal Open Market Committee (FOMC) is the organization that sets the rates. This committee has been indicating its desire for a hike of 75 basis points over the next year. This move would leave room for the markets to forge ahead with the upward trend of the USD.

The gains in September’s Consumer Price Index (CPI) report continue to fuel the narrative that the USD may continue to rise even further. However, predictions for inflation remain mixed. Although inflation is continuing with its current trajectory of deceleration as it moves down to 2.4 percent, concern that the recently imposed tariffs might cause the rate to reverse course and trend upward. Financial experts are also closely watching the volatile Brazilian election scene. As a vulnerable emerging market, political upheaval in Brazil could affect a variety of other global currencies.