Golden Weekly Review: The bulls counterattack was brutally suppressed by the Fed, and the weekly three consecutive negatives or the sword pointing to the 1700 mark

In the past week, spot gold rose first and then fell. Originally because of concerns about the Asian real estate market spread to European and American countries, European and American stock markets fell sharply, and the price of gold once rose to around 1787. The demand for safe-haven buying declined, and due to the Fed’s hawkish interest rate decision, the U.S. Treasury yield rose to a high in more than two and a half months. The price of gold changed from rising to falling, reaching a minimum of US$1,738.12 per ounce and closing at US$1,750.42 per ounce, a weekly decline. About 0.22%, the third consecutive week of decline.

Although institutional investors and retail investors have differences on the spot gold price outlook, considering that gold ETF holdings have hit a new low of nearly a year and a half, and the technical side is slightly biased towards bears, the gold price outlook may still test the support near the 1700 mark.

U.S. stock market bottomed out and rebounded, gold safe-haven buying demand was short-lived

Earlier this week, investors were nervous about the Asian real estate market's worries. European and American stock markets fell sharply on Monday (September 20). The European market fear index once jumped to a nearly eight-month high, and gold prices once received safe-haven buying. support.

Among them, the German DAX index fell 2.3% on Monday, a record low in more than four months; the UK FTSE 100 index fell 0.86%, France fell 1.74%, and the Stoxx 600 index fell 1.67%, both hitting new lows in nearly two months.

US stocks also experienced a night of horror on Monday. The Nasdaq fell 3% during the intraday session; the Dow fell nearly 1,000 points during the intraday session; and the Russell 2000 Index fell 3.6% once, the largest intraday drop since March 23. Over 10,000 stocks fell on the US stock market that day, and the rise/fall ratio of individual stocks was close to 1:10.

The S&P 500 and Nasdaq both recorded their largest single-day percentage declines since May on Monday.

However, the rise in gold prices could not be sustained. After stabilizing on Tuesday, in the second half of this week, the market's worries cooled down, and European and American stock markets rebounded one after another. Weekly gains were recorded, causing gold to turn from a rise to a fall.

(U.S. S&P 500 daily chart)

The Federal Reserve decided to release a signal to reduce bond purchases in November, and U.S. bond yields hit the biggest weekly increase in nearly half a year

Of course, another factor contributing to the fall in gold prices this week is the Federal Reserve's interest rate decision.

The Federal Reserve on Wednesday (September 22) kept the target interest rate range unchanged at the current 0%-0.25%, stating that it may start reducing monthly debt purchases as early as November, and hinting that as the Fed accelerates the reversal of the pandemic China’s crisis policy, the interest rate hike after the end of bond purchases may be earlier than expected.

Half of Fed policymakers now expect to raise interest rates next year and believe that interest rates should rise to at least 1% by the end of 2023, reflecting the need to gradually tighten policies to control inflation and gaining a growing consensus.

The Fed’s median estimate of US gross domestic product (GDP) by policymakers is 5.9% this year and 3.8% in 2022. The June forecast for this year is 7.0% growth in 2021 and 3.3% growth next year. The unemployment rate is expected to fall to 4.8% this year and to 3.8% in 2022. It is expected that this year's price increase will reach 4.2%, which is higher than expected in June.

Powell said at a press conference held after the two-day policy meeting that as long as US employment growth is "reasonably strong" by September, the Fed can start to reduce its monthly debt purchases by $120 billion after the November 2-3 policy meeting. Scale, the United States will announce the September employment report in early October, which is the last employment report before the November meeting.

Powell said that “there is no need for an astonishing or super strong employment report” to prompt the Fed to start “shrinking” its debt-purchasing program, which is expected to end in the middle of next year.

On the whole, the Fed’s latest policy statement and separately released economic forecasts reflect a slight hawkish tendency, and basically finalized the schedule for reducing debt purchases in November, which provided the dollar with upward momentum, and the dollar index once hit a new high in nearly a month. . The better performance is the US Treasury bond yield, the US 10-year Treasury bond yield rose 6.54% this week, the largest weekly increase in the past six months, the highest hit 1.464%, the highest since July 2.

Since the yield of the 10-year US Treasury bond is used by the market as a reference for the risk-free yield, the increase in the yield means an increase in the opportunity cost of holding gold, which has led to a sell-off in gold. Moreover, the yield on the 10-year US Treasury bond broke the key resistance of the 100-day moving average, and there is an opportunity for the market outlook to rise further, which is detrimental to the price of gold.


(Daily chart of U.S. 10-year Treasury bond yield)

In addition, the two regional Fed presidents expressed support for the Fed’s policy decision on Friday (September 24), saying that the US economy has met the conditions for soon to start reducing asset purchases, which puts the gold price at risk of further downside in the market outlook.

Cleveland Federal Reserve Chairman Meester said, “I support reducing purchases from November and ending purchases in the first half of next year. As the recovery continues, the labor market will continue to improve. I expect the conditions for raising the federal funds rate will be To be satisfied before the end of next year.

Kansas Federal Reserve Chairman George also said that "the standard for further substantial progress has been reached", referring to the prerequisites set by the Federal Reserve for underweight asset purchases.

Gold ETF holdings continue to decline

This week, the world’s largest gold ETF-SPDR's holdings further declined. On Thursday (September 23), there was a sharp drop of 8.14 tons, the largest single-day reduction since March 5, to 992.65 tons, which is April 2020. The lowest since the 9th.

This also highlights the pessimistic expectations of institutional investors and mid- to long-term investors for the gold market outlook. The price of gold once fell to US$1,738.12 per ounce on Thursday, the lowest level since August 12.

(Gold ETF-List of changes in SPDR holdings)

(Spot gold daily chart)

Market outlook: Institutional bearish sentiment heats up

The latest results of the Kitco News Golden Week survey show that Wall Street analysts are pessimistic about gold. Although bullish retail investors still account for the majority, bullish sentiment is still at a 7-month low.

This week, 18 Wall Street analysts participated in Kitco's Golden Week survey. Four of the respondents (22%) believe that the price of gold should rise. At the same time, 61% of analysts believe that the price of gold will fall, and 17% of analysts hold a neutral view on the recent price of gold.

At the same time, online voting for retail investors received a total of 850 votes. Among these respondents, 382 (45%) are bullish on the market outlook, another 309 (36%) expect the price of gold to fall, and 159 (19%) are fair.



Analysts pointed out that the Fed's more hawkish tone than expected is pushing up the U.S. dollar and pushing up U.S. bond yields, which are two major unfavorable factors for gold prices.

Adam Button, chief currency strategist at Forexlive.com, said, "This week's breakthrough in the 10-year U.S. Treasury yield indicates a change in market trends. Initially, this will put pressure on gold."

Colin Cieszynski, chief market strategist at SIA Wealth Management, said he is also short on gold because the Fed hopes to change its monetary policy before the end of the year. "I think as the Fed gradually reduces its bond purchases, the U.S. dollar may continue to gain support, putting pressure on gold prices."