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Gold plummets below $1,900

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2023-09-28

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While oil prices remained resilient against a strong US dollar and rising bond yields, gold investors panicked, causing Comex futures prices to dip below $1,900 per ounce.

The US dollar continued to strengthen (causing the Aussie dollar to drop towards 63 US cents), and US bond yields surged, with the 10-year bond yield hitting 4.61% for the first time in 15 years, and the two-year security yield exceeding 5.1%.

This marked the first drop below the $1,900 per ounce level since early March. Wednesday's closing price of $1,893.20 reflected a 1.3% loss, equivalent to over $26 in a single day.

Comex copper futures prices also fell, reaching approximately $3.64 per pound, the lowest in a month, as concerns about Chinese property continued to unsettle investor confidence in the metal.

Iron ore futures in Singapore edged up slightly to reclaim the $116 per tonne level, disregarding the strength of the US dollar. Meanwhile, oil prices saw an increase, with US crude rising by 3.7% to over $93.70 per barrel and Brent surpassing $94 per barrel.

US crude received a boost due to a worsening supply situation at the Cushing futures delivery point, where oil in storage has significantly decreased, according to official figures.

The persistent strength of the US dollar and 10-year bond yields above 4.5% proved too challenging for gold investors on Wednesday, ultimately causing a price decline.

Some analysts believe that the bearish momentum in the metal could push prices back down to their 2023 lows at $1,810 in the spot market. Currently, spot gold is trading at $1,873.32 per ounce, reflecting a 1.43% decrease for the day.

Gold's decline comes a week after the Federal Reserve indicated its intention to maintain a restrictive monetary policy despite concluding its rate hike cycle. Downgrading the likelihood of rate cuts from the Fed in 2024 has driven bond yields to 16-year highs and the US dollar to its highest level since November.

Marc Chandler, managing director at Bannockburn Global Foreign Exchange, emphasised the significance of the dollar's strength and rising interest rates as drivers for gold's recent performance, stating, "Simply put, the dollar's strength, underpinned by rising rates, which reflects the resilience of the US economy and the dramatic increase of supply, as well as hedging or liquidation by others, has sapped gold's earlier strength." He predicts gold may slip to $1,840 as it falls below last month's support.

While some analysts have speculated about central bank buying support, particularly from China, as prices have weakened, concrete information on this remains unknown and may not surface for several weeks.

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