Gold price drops to $1,950 as investors look for more Fed cues

The price of gold fell for a third straight session on Wednesday, with investors bracing for Federal Reserve Chair Jerome Powell’s speeches later today. At the same time, palladium, often used as an auto-catalyst, continued to slide, reaching a five-year low.

Spot gold saw a 0.3% decrease, trading at $1,961.70 per ounce as of 12:27 GMT. U.S. gold futures also slipped by 0.2% to $1,968.80. 

The price of silver also registered a 0.9% drop, reaching a price of $22.41.

Several Fed officials, such as Christopher Waller, on Tuesday maintained a balanced tone on the central bank's next decision, but noted they would focus on more economic data, as well as the impact of higher long-term bond yields.

Powell is scheduled to speak at 9:15 a.m. ET and at 2:00 p.m. ET on Wednesday.

Powell speech: Gold price reaction to depend on Fed chair’s comments

Edward Gardner, commodities economist at Capital Economics, told Reuters on Tuesday that safe-haven demand for gold was cooling as "there is some perception that the conflict in the Middle East might be contained to just Israel and Hamas". He added: 

"Gold price reaction will very much depend on how the market views Powell's comments. We forecast the Fed to cut rates faster than the market expects next year ... The lower government bond yields in the U.S. next year will give a boost to demand for gold."

Lower interest rates boost the appeal of gold — a non-yielding asset.

Gold price: Central bank buying may explain the yellow metal’s resilience to downward pressure

In their weekly precious metals appraisal, made available to Markets.com on November 6, analysts at German technology firm Heraeus said that the resilience of the price of gold to pressure from the U.S. dollar and Treasury bond yields may be explained by central banks buying the yellow metal:

“Abnormally high levels of central bank buying may help to explain why the gold price is defying downward pressure from both US dollar strength and surging bond yields so far this year. This year, central banks, led by emerging market economies, have added 800 tonnes of gold to their collective reserves, 14% more than last year. China is the largest purchaser, having bought 181 tonnes this year, and following an increase of 57 tonnes in Q3, Poland has added the second-highest amount of gold. Central banks were forecast to show a strong bias towards gold buying this year, though they were not expected to match last year’s record level. However, if Q4 is as strong as the previous quarter, global net central bank purchases would exceed last year’s record of 1,082 tonnes.”

That sentiment was supported by Daniel Hynes, Senior Commodity Strategist at ANZ Bank: 

“[…] strong central bank buying remains a supportive factor. China topped up its gold holdings for a 12th straight month in October, with its reserves rising by about 740,000 ounces (~23t), according to official data. That takes total holdings to 2,215t.”

Gold price forecast: $2,000 “as good as it gets” for XAU/USD, says Commerzbank

In a gold price price forecast issued on November 7, economists at Frankfurt-based Commerzbank wrote that the $2,000 price level may be the ceiling for the commodity in the near future: 

“The US Dollar and bond yields are not currently the main drivers of the gold price. The escalation of the Middle East conflict and the resulting demand for gold as a safe haven played a key role in the upswing since early October.

Because the Middle East conflict has not escalated any further so far, despite the Israeli army’s ground offensive in the Gaza Strip, the gold price appears to be shedding some of its geopolitical risk premium again. It looks as if $2,000 will be as good as it gets for the gold price for the time being.”

At the time of writing on Tuesday, the front-month gold contract on the NYMEX traded around the $1,960 mark, as per MarketWatch data.

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