Gold’s long-term downturn continues with prices on their way to finish
the third quarter in negative territory, its second consecutive lower
quarterly close.
December Comex gold futures are ending the quarter in the middle of its trading range, hovering just above the key psychological support $1,100 an ounce and down about 5% since July 1.
In the third quarter investors reacted to falling equity markets and fresh Federal Reserve interest rate expectations therefore making it volatile for gold.
At the beginning of the quarter, sentiment in the gold market fell to a historic trough as prices hit multi-year lows. However, they were short-lived as a 1,000 point drop in the Dow Jones Industrial Average and overall softer global equity markets recovered from those losses.
The issue in the gold market has
been the Federal Reserve’s bias to hike rates sometime this year, with
the only questing being the exact timing.
In mid-September, the gold market saw another respite from fresh selling pressure after the Federal Open Market Committee (FOMC) left interest rates unchanged in its zero-bound range. Fed Chair Janet Yellen further spooked markets, buoying gold prices, when she said in the press conference, following the meeting, that the committee didn’t increase rates because of weaker global growth and concerns about low inflation.
Bill Baruch, senior commodity broker at iiTrader said that a close below $1,119 an ounce will be extremely bearish for gold prices moving forward and could lead to continued selling pressure in the fourth quarter.
In his opinion, a rate increase would be the most positive scenario for gold.
“The best thing that could happen to the gold market right now is if the Federal Reserve hiked rates. I think that would put the bottom in the gold market,” he said.
Jessica Fung, commodity analyst at BMO Capital Markets, said in the last quarter, she expects gold prices to continue to struggle in the current environment.
Even after the Fed decided to leave rates unchanged
in September, it wasn’t enough to push price above the August highs, she noted.
“At some point either by the end of the year or early next year
interest rates are going higher,” she said, adding that this will keep overshadowing positive seasonal signs for gold.
Mike Dragosits, senior commodity strategist at TD Securities sticks with the same opinion. Positive seasonal factors will be eclipsed by the Fed in the fourth quarter, he said, adding that inflation needs to pick up, which TDS expect to happen in 2016 before investors turn to gold again.
