The international gold price has dropped slightly, and investors are assessing the situation and looking for new catalysts
On Wednesday (November 16), the international gold price fell slightly, but it was not far from the three-month high of $1,786.36 an ounce hit in the previous trading day. The weak dollar limited the downside of gold prices. Following reports that two people were killed in Poland by a Russian-made missile, the market awaited further clarity on the details.
At 15:23 Beijing time, spot gold fell 0.29% to $1,773.79 an ounce; the main COMEX gold futures contract rose 0.03% to $1,777.4 an ounce; the U.S. dollar index fell 0.18% to 106.361.
U.S. producer price inflation for October also weakened overnight after U.S. consumer prices fell short of expectations last week, providing further evidence that inflation is starting to recede and boosting sentiment toward the Federal Reserve. Expectations of a possible slowdown in rate hikes in the future.
Both CPI and PPI weakened, suggesting that the worst of the price surge is over and could prompt the Fed to ease its aggressively hawkish stance. This is evident from the continued decline in U.S. Treasury yields, which continues to weigh on the dollar and provides additional support for the non-yielding asset gold.
According to CME Group’s “FedWatch” tool, there is less than a 20 percent chance that the Fed will raise interest rates for the fifth time in a row by 75 basis points in December. But it’s worth noting that Fed policymakers are leaning towards continuing to tighten policy, despite not providing quantitative guidance.
Atlanta Fed President Bostic said on Tuesday (November 15) that he has not yet seen indicators showing that inflationary pressures have eased, so more interest rate hikes are expected in the future. Federal Reserve Governor Lisa Cook reiterated on Tuesday that U.S. inflation remains “too high,” adding that the central bank’s focus is on addressing inflation.
Analysts at TD Securities said: “We find that short-covering commodity trading advisors (CTAs) will still support gold’s rebound towards $1,850 an ounce, suggesting that if the dollar continues to weaken, gold will continue to face the risk of a short squeeze, and CTA increases again. The threshold for short positions is higher.”
U.S. President Joe Biden said the U.S. and its NATO allies were investigating a bombing that killed two people in Poland. Russia has denied responsibility. Early information suggests the explosion may not have been caused by a Russian missile launch.
U.S. officials said preliminary findings indicated that the missiles that landed in Poland were fired by Ukrainian forces at incoming Russian missiles, the Associated Press reported. Three U.S. officials told The Associated Press that Ukraine has been trying to defend itself against Russian attacks on its power infrastructure.
Gold prices have soared in the last two weeks amid loosening expectations from aggressive Fed hawks, but new catalysts must be found to continue higher. Uncertainties may exist, such as a more radical and immediate escalation in Ukraine. Markets are trying to assess the risk of the Polish missile incident, whether it will lead to an escalation of tensions or a de-escalation in the coming days.