The last seven days were the most unsuccessful for gold in the last 5 weeks. The asset shed 2.3% as of the end of the week. Will it be able to make up for the losses in the next few days or will it continue to fall?
Last Friday, prices for gold fell below $1,800. A day earlier, the metal passed that threshold after the European Central Bank announced its intention to reduce its asset purchase by the end of the year, causing the dollar to fall.
However, at the end of the week, the dollar index rose by almost 0.1% to 92.592. The yield on 10-year US Treasuries also increased to 1.341%.
Both indicators rose amid the publication of the producer price index (PPI). According to a report by the US Department of Labor, the nation's inflation rate grew by 0.7% in August after rising by 0.1% in July.
Investors' appetite for gold decreased noticeably amid a rise in the dollar and US bond yields. On Friday, the gold price settled at $1792.10, down $7.90 or -0.44%. It was the first weekly decline in more than a month.
Analysts believe gold prices were not supported by higher inflation rates, as traders decided that rising consumer prices could push the Fed to tighten its monetary policy earlier.
Also, concerns about the imminent reduction in stimulus measures intensified after the new comments of the US Federal Reserve representatives.
On Friday, Federal Reserve Bank of Philadelphia President Patrick Harker and his Cleveland colleague Loretta Mester said they supported moving toward a tapering process sooner rather than later.
According to Citi Research forecasts, the American regulator will announce a reduction in bond purchases in the fall (from September to November), and in early winter, it will be able to start tapering stimulus measures.
Meanwhile, the nearest event at which the Fed will again raise the issue of its monetary policy will take place on September 22. Many analysts believe that until then gold will remain in a narrow range and will be at around $1,800.
The gold continues to trade near the psychologically important level this morning. The price went up symbolically to $1,793.5, showing a rise of only 0.08%.
At the beginning of the new working week, the cost of gold bullions ranges between rising and falling, because the dollar is strengthening against world currencies, and the yields of US government bonds are declining.
Experts note that in the coming the gold price may be affected by such factors as the consumer price index to be published on Tuesday, the Empire State Manufacturing Index by the Federal Reserve Bank of New York, the release of which is scheduled for Wednesday, as well as data on retail sales and jobless claims, which are expected on Thursday.
In addition, at this stage, the pricing of gold is highly dependent on the mood in the US stock market. The Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America warned about the possible sale of securities. Experts explain potential correction by extremely overvalued stocks.
"Volatility in the equity space might be what gold needs right now," said Bloomberg Intelligence senior commodity strategist Mike McGlone. "A constricting gold-price cage and gravity pull around $1,800 an ounce is akin to patterns that previously emerged just prior to returning to a more enduring upward trajectory. Even a bit of uneasiness in the US equity market could be enough to get the precious metal going," he added.
Colin Hamilton, an analyst at BMO Capital Markets, also believes that in light of this potential market volatility and considering gold's current trading levels, it is unlikely for the precious metal to see more sell-offs.