Gold prices ebb and flow with dollar and US rate expectations

Ole Hansen

Head of Commodity Strategy

Summary:  The direction of precious metals continues to be dictated by incoming US economic data, as they eventually will determine the direction the US Federal Reserve decides to go on rates. As a result an end of August rally in gold and silver has been partly reversed after manufacturing and services PMI both beat expectations. In addition, the dollar at a six month high has also been adding some downside pressure while rising oil prices have cushioning the fall given their potential impact on inflation and growth

Global Market Quick Take: Europe
Commitment of Traders: Specs rush back into metals; weak crude conviction

The direction of precious metals continues to be dictated by incoming US economic data, as they eventually will determine the direction the US Federal Reserve decides to go on rates. It was weaker than expected economic data that supported an end of August rally as it lifted expectations of peak rates followed by lower rates in 2024, and in the process forced traders to cover short positions which had been established in response to dollar and bond yield strength. 

The softness in US economic data did not last, and during the past week both manufacturing and services PMI showed strength, with the headline and the prices paid component beating expectations, thereby once again raising odds of a quarter-point Fed rate increase in November to more than 50%, and with that another delay to the timing of a precious metal supportive peak rate scenario.

The sharp turnaround in rate expectations from a pause to the risk of another rate hike helped send bond yields higher while reducing the number of expected 25-bps rate cuts next year from five to four. The dollar, however, remains one of gold traders' biggest sources of directional inspiration and this past week the Bloomberg Dollar Index, which tracks a basket of 11 major currencies, reached a six-month high. The jump in crude oil prices following Saudi Arabia’s decision to extend its unilateral production cut until yearend, has probably helped prevent an even deeper setback for gold as it not only raises inflation but also growth concerns. 

Silver, meanwhile, has suffered a 5.5% setback so far this month with copper weakness, as the yuan takes a fresh tumble, being added to headwinds being created by lower gold prices. In addition, silver was left exposed to long liquidation after hedge funds in a two-week period to August 29 bought silver futures at the fastest pace since March last year.  Gold prices have also but to a lesser extend been suffering from long liquidation after funds in the week to August 29 bought back around 30% of 11 million ounces, they had sold in the previous five weeks. 

Do note that this group of traders tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

At Saxo, we maintain a patiently bullish view on gold and silver and see the yellow metal eventually reaching a fresh record in the coming months. The timing for a fresh push to the upside, however, will remain very US economic data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen recently, the result is likely to be continued choppy trade action. 

Having found trendline resistance at $1947, gold has returned to test the 200-day moving average, currently at $1918 ahead of $1910, the 0.618 Fibonacci correction of the August rally. Overall, the metal is currently stuck in a narrowing range, currently between $1893 and $1942. 

Source: Saxo


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.