Gold Near 2-½ Year Low on Overdone Panic Over Rates

By Barani Krishnan

Investing.com -- In an ideal world, market moves sync perfectly with the news, data and other valuation matrix of an asset. In the real world, of course, there’s a greater chance for things to be overly exuberant or gloomy. Thursday’s selloff in gold was beyond gloom, bordering on utter, ridiculous panic.

On a day when neither the forex nor bond markets did enough to move the needle on gold, bears found it fit to hammer the yellow metal to mid-$1,600 lows seen before the pandemic rally of 2020 that eventually resulted in the all-time highs of above $2,100.

The benchmark gold futures contract on New York’s Comex, December, settled down $31.80, or 1.9%, at $1,677.30 per ounce. The session low was $1,669.05, marking a bottom since June 2020.

Worse was the spot price of bullion, which is more closely followed at times than futures. Spot gold was at $1,665.20, down $32.25, or 1.9%, on the day. The intraday low was $1,660.41. The last time spot gold was lower than that was in April 2020, before it began the turnaround that took it to record highs.

With the tumble over two previous days of trading, both the futures and spot markets were down 3% on the week.

Perplexing to most watchers was the absence of a clear trigger for Thursday's plunge.

The Dollar Index wavered in a piddly band between 109.148 and 109.653 while yields on 10-Year Treasuries moved in just as modest a range of 3.402 - 3.468.

Forex and bonds, in contrast, were in sync with the news of the data, which involved a so-called data dump — comprising weekly U.S. jobless stats, retail sales figures for August and New York Fed manufacturing numbers — ahead of the all-important interest rate decision of the central bank’s Federal Open Market Committee due on Sept. 21.

Weekly filings for U.S. unemployment claims fell for a fifth week in a row, according to Labor Department data on Thursday that showed a healthy labor market able to fuel Americans’ spending even as the Federal Reserve tried to curb it with rate hikes.

But the jobless numbers themselves weren’t staggering. Initial claims for unemployment insurance for the week ended September 10 were 213,000, down 5,000 from a downwardly revised total of 218,000 claims from the prior week, the Labor Department data showed. That was the lowest level for unemployment filings since the week ended May 28.

Ditto with the retail sales figures, which rose 0.3% in August, according to Commerce Department data that suggested tumbling fuel prices had boosted Americans’ ardor for other purchases that kept up inflation and rate hike expectations. Economists had forecast a 0.2% rise.

“Gold got pummeled ruthlessly,” said Ed Moya, analyst at online trading platform OANDA. “If Treasury yields keep going up that will keep the selling pressure on bullion. Gold should find support soon as investors will refrain from any overweight positions until they hear directly from the Fed. “

So, where’s gold likely headed from here?

“In the near term, a further drop to $1650 may be seen,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

He noted that gold was oversold from its Relative Strength Indicator reading of around 30 and stochastics of below 5/10 across the daily, weekly and monthly charts of bullion —- calling for a rebound, respectively, to the $1,686, $1,695 and $1,710 levels.

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