Gold Futures: A Look at Upcoming Trends

According to flash data from CME Group, open interest in the gold futures market increased for three sessions in a row on Friday by over 1,000 contracts. After two days of drops, volume increased by just under 64,000 contracts. The entire gold market experienced a stellar rebound on Friday after the end-of-week lows.

With gold prices experiencing a more than 1% rise over the weekend following the rising geopolitical tensions that broke out between Israel and Palestine, gold futures followed suit. Both open interest and volume increased, providing excellent opportunities for near-term advancements. With this rise, gold now has a new positioning with key $1,900-per-ounce targets as its next ceiling.

On Thursday, October 12, spot gold reached a two-week high, with the U.S. dollar and Treasury yields both pulling back as the Federal Reserve expressed caution regarding future interest rate decisions given the upcoming U.S. inflation data due Thursday afternoon.

Ahead of the data, spot gold rose by 0.4% to $1,881 per ounce, signifying its highest price point since September 27. Gold futures also increased by 0.4% to $1,894 per ounce, just under critical $1,900 lines.

Gold’s recent gains have been accelerated by the decline in yields and the meeting minutes recently released from the September FOMC gathering, according to Michael Hewson, the chief market analyst at CMC Markets. Hewson believes the “bias remains for further modest gains towards $1,900 an ounce with support at $1,840.”

September’s FOMC meeting minutes revealed heightened uncertainty surrounding the U.S. economy’s path to a soft landing. Policymakers displayed more caution than previously expected. The newly revealed dovish stance offered gold a breath of fresh air as traders realized that rates may not stay high for as long as initially thought.

“Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels. A few participants noted that it would be important to monitor the real federal funds rate in gauging the stance of monetary policy over time,” the minutes stated.

Most policymakers agreed that the current rate “broadly appeared to be restraining the economy as intended.”

The above statements helped non-yielding bullion while pushing down U.S. Treasury yields and the dollar index. Treasury yields reached a two-week low, while gold excelled past its two-week high.

On Wednesday, additional data came out revealing an increase in U.S. producer prices in September, above expectations. The underlying inflation pressures remained at expected levels.

After the minutes and data came out, investor focus shifted toward the U.S. consumer price index (CPI), showing September’s inflation data.

“If CPI comes in hotter than expected, it may put the prospect of a November rate hike back on the table,” added Hewson ahead of the release.

According to CME’s FedWatch tool, the current likelihood of rates staying the same this year is 72%. If such plays out, gold may continue enjoying modest gains, breaching key $1,900 per ounce levels.

At 12:30 p.m. GMT on Thursday, the Consumer Price Index data came out, showing a larger increase than previously expected. The CPI, closely reflecting inflation, increased by 0.4% during September, representing a 3.7% year-on-year increase. The Dow Jones estimate placed just 0.3% and 3.6% rises for both of these respective figures.

When excluding energy prices and volatile food, the core CPI figure rose by 0.3% or 4.1% on a 12-month basis. Policymakers typically weigh this figure more heavily than the non-core rate.

While the inflation rate may be up from June (3%) and July (3.2%), the figure remains on par with August’s rate of 3.7%. How the Federal Reserve responds to this data is highly unclear. The committee may see this steady rate as a positive sign of an economy that isn’t spiking in either direction, or they may see it as a stagnant movement that requires another hike.

The next Federal Reserve gathering will occur on November 1, with another one scheduled in December. How each meeting plays out will likely impact gold prices as high rates increase the opportunity costs of investing in non-yielding assets like gold. Dovish opinions moving forward would likely bode well for the precious metal, though another hike or any hawkish attitudes would mean more headwinds.

When analyzing upcoming trends, the primary concerns affecting gold pricing right now are the upcoming Fed meetings and tightening tensions overseas. As always, investors should consult their financial advisors before making any portfolio decisions.

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