Gold price (XAU/USD) settled deep in the red on Friday to end September down over 4.5% and lower for the second quarter in a row. The yellow metal als
o recorded its biggest weekly decline in more than two years on growing acceptance that the Federal Reserve will keep interest rates higher for longer. In fact, the US central bank left the benchmark rate unchanged at its September meeting, though maintained the projection for one more rate hike by the year-end.
The aforementioned fundamental backdrop suggests that the path of least resistance for the Gold price is to the downside, though extremely oversold conditions warrant caution for bearish traders. Investors might also refrain from placing fresh directional bets ahead of important US macro data scheduled at the beginning of a new month.
The rise in consumer spending, meanwhile, along with surging gasoline prices, points to higher prices going forward. The US Congress on Sunday approved the stopgap funding bill to avert a government shutdown for another 45 days. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar as it makes the US a more attractive place for international investors to park their money.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
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