Yellen & Co. have been at it again, with recent Fed-speak weighing on the gold price today.
After a little strength early in the week, the gold market started to succumb to pressure from weak hands. Gold did trade below an important price support level, suggesting the possibility of more near-term weakness.
On Wednesday, Nov. 11, gold prices began to weaken, eventually touching but remaining above the crucial level of $1,084.50. That's the low point for this year, reached back in early August.
This action came a day after the U.S. Dollar Index (USD) rose above 99.5 to flirt with the psychologically important 100 level it reached earlier this year. It was on Tuesday, Nov. 10, that San Francisco Fed President John Williams indicated there was a "very strong case" to raise rates in December should their data continue to show economic improvement and confidence inflation will gain.
The USD index then lost a little ground over the next two trading days, despite Fed presidents doing the rounds on Thursday, Nov. 12. On that day, St. Louis Fed President James Bullard said that the U.S. Federal Reserve's long-running near-zero interest rate policy has placed the American economy at "considerable risk of future inflation," and that it was time to raise rates since unemployment and inflation goals have been reached.
Those remarks appear to have been enough to push the price of gold below support of $1,084.50.
Gold stocks, for their part, fared a little better, mostly because they moved sideways and resisted selling.
Meanwhile, further news on gold market trends and events are pointing to a possible inflection point.
Take a look...
Gold Price Forecast
The World Gold Council has just released its third-quarter issue of Gold Demand Trends.
Here are some of the most relevant highlights of what's moving the gold market:
- Lower gold prices attracted buyers looking for bargains. Q3 saw a 33% year-on-year jump, with buying demand reaching 295.7 tonnes of gold bars and coins.
- In the United States, retail investors bought a whopping 32.7 tonnes, representing growth of over 200% year on year.
- Worldwide jewelry demand was up 6% year on year thanks to lower prices, with India leading the pack buying 631.9 tonnes, helping to make Q3 the strongest third quarter for jewelry since 2008.
- Thanks to consistently strong buying from central banks, Q3 equaled the same quarter last year with 179.5 tonnes of official purchases. That's 19 consecutive quarters that central banks have been in net gold-buying mode.
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On the other hand, some of the most popular gold investment vehicles, ETFs, are having a tough go of it lately...
Sentiment has been scraping the bottom, pushing gold ETF holdings to multiyear lows.
In the first week of October, worldwide holdings in bullion-backed exchange-traded products fell by 26.9 metric tons. SPDR Gold Trust ETF (NYSE Arca: GLD), the world's largest physically backed ETF, just saw its holdings drop to 666.11 metric tons, its lowest level since September 2008.
Gold Price Outlook After Fed Rate Hike
So all of this pushing and pulling brings up an interesting perspective.
After about a year of Fed-speak promising higher rates and a December rate hike now looking more certain, perhaps this in and of itself will be enough to spark higher gold prices.
Once the Fed finally raises rates, however minimally, at least the anticipation and uncertainty will have been removed. And that could be enough for gold to begin carving its path higher.
Meanwhile, after breaching support at $1,084.50, look for gold to potentially test the $1,035 level, and ultimately perhaps even lower, before finding a final bottom.
One key factor to watch at this juncture will be the U.S. Dollar Index. If it is unable to break and hold above 100 and instead heads lower, then that's likely to support higher gold prices.
Interestingly, gold stocks, despite volatility, have held their own in a week when gold displayed weakness. Perhaps they know something, and maybe they will be the ones to lead a recovery.
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