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Gold Dips, Lost For Direction as Dollar Stubbornly Strong Post-Fed

·3 min read

By Barani Krishnan

Investing.com - Gold resumed its slide on Thursday, a day after the Federal Reserve said U.S. interest rates will likely stay near zero for another three years — a pledge that ended up benefitting the dollar instead and exposing, once again, the goofy side of financial markets.

“XAU/USD in no-man's land awaiting a catalyst,” precious metals analyst Ross Burland said in a blog on FX Street that used the trading symbol for bullion.

“Gold prices have been in consolidation for some time, yet the Fed was unable to encourage a breakout,” Burland wrote. “Bulls will now hope for a deceleration of both USD's recovery, COVID-19 spread and signs of inflation and lower real yields.”

Credit Suisse (SIX:CSGN), in a note, suggested a deep correction ahead for gold that could send the yellow metal to $1,765 an ounce from current levels that were nearly $200 higher.

The Swiss financial group said its base case objective for gold remained bullish at $2075/80.

Yet, the path of least resistance was lower, it said.

“Whilst we continue to see the long-term trend higher, reinforced by falling US real yields and a falling USD, our immediate bias remains for further consolidation above a cluster of supports at $1897/37, which includes the 23.6% retracement of the rally from the 2018 low,” it said.

In Thursday’s trade, U.S. gold for December delivery settled down $20.60, or 1.1%, at $1,949.90 per ounce.

The spot price of gold, which reflects real-time trades in bullion, was down $10.97, or 0.6%, at $1,948.33 by 4:00 PM ET (20:00 GMT).

Gold bulls have been trying to revive momentum in the yellow metal since the market’s slump from August record highs of nearly $2,090 an ounce on COMEX and $2,073 on bullion.

But they’ve been stumped without fail by the logic-deying strength in the dollar, which has mostly held to its key bullish 93-handle over the past six weeks despite dovish Fed policy.

At its monthly policy meeting on Wednesday, the central bank again left U.S. rates at near zero in an effort to heal the economy from the ravages of the COVID-19 pandemic. The Fed, in a forecast, also indicated there would be no change to rates through 2023.

Yet, the dollar rallied and held to its 93-handle for most of Thursday, sliding below that level only late in the day.

Some analysts tried to explain away the greenback’s strength to the Fed’s lack of commitment to further asset buying that could support the economy.

But that was clearly untrue from the central bank’s policy statement for September, issued Thursday, which said over the “coming months, the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities, at least at the current pace, to sustain smooth market functioning and help foster accommodative financial conditions.

This action, the Fed, was to support “the flow of credit to households and businesses.”

It clearly goes to show that if the market has a bias, it will find a narrative for it.

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