The Gold Market has been subject to huge downward pressures amid the timing of the FED's rate hike decisions. Gold now again hovers at 1-month lows, coming of the back of the biggest 4-day losing streak since September 2013 - falling 5 consecutive quarters.
But even with soaring demand from Asia, why are the Markets so reliant on the FED decision? Well if the FED do increase rates, nobody wants stock hold bonds, because they will pay lower coupons than newer bonds... and turning to Gold - that asset pays no Coupon at all! The more hawkish the FED remain, the worse the impact on the Gold price. Not forgetting that Gold is still priced against USD.
This close relationship was marked again today by this mornings rally to $1120 and was completely sold off and there are even more headwinds/failures in recent breaks to the upside. $1075 was the recent bottom and this is not far our of reach. I don't think we will see a reversal anytime soon to the upside.
Figure below from Atom8's MT4 Terminal (XAUUSD.v) - Gold Staying Down
When will we see a reveral? Here's hoping Ms Yellen gives some more indication tonight about future direction of the Hiking Cycle. Perhaps all that is needed for the Metals is some clarity, then we can move on & up! Theoretically, the FED could continue to hike rates up to infinity and that would cause USD weakness. Given historical trends, Gold could remain the preferred safe-haven asset & may well return back to $1400-1500 in the next few years.
Best of Luck
Anish8FX @ Atom8.com
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