After falling sharply yesterday, gold is taking a breather this morning. This is despite strength in the US dollar, which continues unabated. Despite low inflation readings, gold has continued to weaken on the Federal Reserve's determination to raise interest rates and the potential for inflation to turn higher in the coming months. While inflation has fallen in 2017 in rate-of-change terms (which is a bullish economic environment for gold), the precious metal is wary of any change to the status quo. Thanks to oil prices which have recently strengthened, the trajectory of inflation may be about to change.
Despite Trump's Twitter comments this weekend suggesting that diplomatic talks with North Korea would be of limited use, gold has not strengthened as political tensions rise.
Our short-term and medium-term outlook on gold remains bearish, despite approaching oversold conditions which typically signify turning points. After its most recent peak close to $1,350, gold is now well under $1,300. The precious metal is currently trading below $1,270.
After falling below $1,300 on Yellen's comments on September 26, gold is back to bearish. The Federal Reserve Chair reiterated the need to continue hiking rates, despite uncertainty regarding the future path of inflation. This was followed by the revelation of Trump's tax plan on September 27, which has led to further dollar strength (and gold weakness). Gold previously entered overbought conditions in early September, and is now approaching oversold conditions in early October. This is based on various technical indicators on a daily chart of the precious metal.
Looking at the medium term picture, we remain bearish on gold in the medium term. Gold is currently correcting, having entered overbought conditions in early September. The recent bout has accelerated following the Federal Reserve's suggestion that future interest rate hikes are likely and Donald Trump's tax plan. Today, prices have re-entered normal trading conditions when looking at various technical indicators, and gold no longer looks overbought.