Gold fell to its lowest level since October 11 last week. The selling was fueled by a strengthening U.S. Dollar, a hawkish U.S. Federal Reserve and increased demand for higher risk assets. Also weighing on overall commodity market sentiment, was a steep break in crude oil prices, which drove the market into bear market territory, a little more than a month after it reached a four-year high.
For the week, December Comex Gold futures settled at $1208.60, down $24.70 or -2.00%.
The dollar rose against a basket of major currencies to nearly a 16-month high after the U.S. Federal Reserve left its benchmark interest rate unchanged, while maintaining its hawkish monetary tightening stance.
Although the central bank held rates steady as widely expected, the language in its monetary policy statement reaffirmed it remained on pace for another rate hike in December, its fourth of the year. This notion is supported by the CME Group’s FedWatch tool, which showed traders’ expectations at 75.8 percent, compared to 71.1 percent a day earlier.
Higher interest rates would continue to make the U.S. Dollar an attractive investment as well as safe-haven demand due to lingering concerns over the trade dispute between the United States and China, and the heightened volatility in the global equity markets.
December Comex Gold closed in a position to test a key technical support zone on the weekly chart. The August to October rally formed a range between $1167.10 and $1246.00. Its 50% to 61.8% zone is $1206.60 to $1197.20. Trader reaction to this zone should determine the direction of the market this week.
A sustained move over $1206.60 will indicate the presence of buyers. A trade through $1197.20 will indicate the selling pressure is getting stronger.
Fundamentally, a bearish tone was set by the Fed last week and this tone is likely to continue this week as long as Fed speakers and the economic data continue to support the central bank’s plan to raise rates in December.
On Wednesday, the U.S. will release its latest data on consumer inflation. The CPI is expected to come in at 0.3%. The Core CPI is forecast at 0.2%.
On Thursday, Core Retail Sales are expected to have risen 0.5% and Retail Sales are forecast to have risen 0.6%.
Fed Chairman Jerome Powell will deliver speeches on Wednesday at 2300 GMT and on Friday at 1630 GMT. In last September he made hawkish comments that many blame for setting of the steep decline in early October.