Wall Street turns bullish on gold price ahead of the Fed, Main Street clings to slim bullish majority despite weekly slide

Gold prices saw another volatile week of trading, with early attempts to stabilize above $4,400 per ounce eventually overwhelmed by surging oil prices, higher Treasury yields, and rising expectations that the Federal Reserve will raise interest rates at next week’s policy meeting. Spot gold kicked off the week trading at $4,422.50 per ounce on Sunday evening, and the yellow metal initially tried to build on the prior week’s late recovery as traders monitored the U.S.-Iran conflict, the Strait of Hormuz, and renewed inflation risks from higher energy prices. The metal pushed higher into Tuesday, when spot prices set their weekly high at $4,442.98 per ounce, but the rally quickly faded as the dollar firmed and rate-hike expectations continued to build. Selling pressure accelerated Wednesday and Thursday after PPI showed U.S. producer prices rose in August, reinforcing concerns that energy costs and supply disruptions were feeding back into inflation. Gold broke below $4,350 as Treasury yields climbed and traders priced in a growing chance that the Fed would tighten policy again at its Sept. 15-16 meeting. The metal then rebounded Friday after August CPI kept inflation pressure alive but did not trigger a fresh panic, helping dip-buyers step in near the lower end of the week’s range. Still, the recovery remained capped as core inflation kept the Fed-hike trade firmly in play, with futures markets pricing the odds of a September rate increase sharply higher after the data. After falling to its weekly low at $4,292.11 per ounce on Friday, spot gold recovered part of the previous days’ losses but failed to reclaim the $4,400 level, leaving the metal lower on the weekly chart heading into the weekend. The latest Kitco News Weekly Gold Survey showed Wall Street returning to its bullish bias after gold’s late-week rebound, while Main Street further pared back its bullish majority following another weekly decline. “Gold may trade higher into the FOMC meeting,” said Marc Chandler, managing director at Bannockburn Global Forex. “The $4460-$4510 area may be a reasonable technical objective. However, the outcome of the Fed meeting is the key. The Fed funds futures are discounting almost 90% chance of a hike, but economists surveyed by Bloomberg (Sept 4-9) are less sanguine. Only 13 of 48 expect a hike.” “The failure to hike could see gold rally,” Chandler added. “A move above the $4540 area lifts the technical tone.” “Lower,” said Adam Button, head of currency strategy at investingLive. “The Fed will hike, and that puts a downward bias into gold but if the statement and press conference isn't sufficiently hawkish, then gold could quickly rebound.” “Up,” said Darin Newsom, senior market analyst at Barchart.com. “At this point Friday morning, the Dec futures contract has held its previous low daily close of $4,396.40 from September 1. This sets the stage for Dec26 to build bullish momentum, enough to take out its previous high daily close of $4,539.90 from September 3. Additionally, the 45-day moving average continues to increase, something algos are likely keeping an eye on. Dec26 has not closed below its 45-day since August 4.” “What do the August PPI and CPI numbers mean for gold? Nothing, as far as I’m concerned,” Newsom said. “The Fed fund rate should go up, possibly twice yet this year - October and December? - but I don’t think it will strengthen the US dollar as it would be expected to because the rest of the world continues to sell the US. For obvious reasons. Meanwhile, central banks continue to buy gold. Also for obvious reasons.” “Unchanged for now,” said Adrian Day, president of Adrian Day Asset Management. “Gold moving up in the face of higher US consumer inflation, strengthening the case for an interest rate increase next week, as well as higher Treasury yields, is a strong sign of underlying strength. The volatility in the Iran conflict means a reversal, in oil and the dollar, is always possible, and that w...