Edward Culchenko
On September 26th, COMEX showed controversial dynamics in the market of gold. Along with the uncertainty around the Fed’s intension to taper the bond purchases keeps increasing the volatility in the global market of gold.
As far as the real buyer of physical gold is concerned, there seems to be no clear interest in the precious metal. As soon as the Fed decided to abandon the first round of QE tapering, the reverse correlation of gold price dynamics got more intensive. On top of that, retail buyers in Asia reduced their exposure to gold and are waiting for the situation to clarify.
US Debt Ceiling Troubles Financial Markets
Within the framework of discussing the US debt ceiling in the US Congress, the Republicans are backing the idea of raising the ceiling. Another backer of the idea is the US Department of Treasury. As a result the broad market is concerned since gold (as a safe-haven asset) outperformed other precious metals in last week.
When it comes to the prospects of gold in the 4th quarter of the year, the key driver is whether the Fed finally decides to taper its accommodative policy (QE) in the near future. The resolution of the debt ceiling issue in the US Congress seems to be hindered by the Fed’s reluctance to taper the QE program. The upside potential of the gold market is limited while the US Dollar has all chances to strengthen if the Fed ultimately decided to taper the bond purchases on a monthly basis.
According to the IMF, the official sector keeps buying gold. In particular, the Turkish central bank increased its gold reserves by 23 tons last months. As for the Russian central bank, it purchased 132 tons of gold last month. Other emerging markets are also increasing their gold reserves in attempt to diversify their gold-and-currency reserves. Lower gold prices contributed to that.
As soon as the US Dollar strengthens and gold prices consolidate, central banks will slow down their gold purchases. The chart below, courtesy of Masterforex-V Academy, reflects the current state of affairs in the market of gold:
According to GKFX (TOP10 of Masterforex-V Academy’s rating of Forex brokers ) report that amid growing concerns caused by debt ceiling talks, gold has been rallying for 4 consecutive trading sessions. Even though that the previous 3 session were bearish, the December futures gained 1.5% up to $1.336.20 per ounce. Amid the strengthening of the US stock market and inflation slowdown, the precious metal is down by 20% YTD. In August, gold prices gained 6.3% amid some tensions in the Middle East.
Meanwhile, experts say that US Congressmen shouldn’t delay the resolution of the debt ceiling issue otherwise the USA may get its credit rating cut, which may result in some kind of a paradox when the US Dollar turns into a safe-haven asset and US bond yield increase.
Edward Culchenko
