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There is hope for gold — but barriers towards sustained rally remain for now - TDS

"Considering that it is quite likely that the set of market dynamics that have recently driven the yellow metal into the ditch are set to remain for the balance of 2018, we expect choppy range-bound trading between $1,180-1,215/oz in the near term," note TD Securities analysts.

Key quotes

"Indeed, fiscal stimulus and worries that rates are set to rise ever closer to the dots will increase the opportunity costs of holding zero-yielding assets. Until other western central banks meaningfully tighten their policy, the US dollar's strength relative to western and EM currencies is quite likely to remain a significant headwind that will suppress positioning for gold bugs. As such, we don’t expect much sustainable upside in the near term, and expect prices to remain under pressure for now."

"Given that gold prices have been driven primarily by the events in FX market, and not so much by rates of late, the reversal in USD upward momentum is the key factor to watch here. We expect the dollar's best days are nearing. While the growth story has offered the USD some legs into the summer just as the ECB got cold feet, the severe flattening of the US yield curve is a major headwind for a sustained rally in the greenback."

"Gold should continue to ride the Fed-driven roller coaster lower, after the FOMC raised rates as expected at the September meeting and kept the dot plots trajectory largely unaltered. Mr. Powell and friends lifted the long-run dot and went to great lengths to say that dropping any reference to "accommodative" in the communique did not mean that they will be straying from their previously announced plan for now."

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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