Gold prices hold steady amid inflationary pressures and central banks rates decision

GOLD prices have spent most of the week around the US$1,800 psychological pivot ahead of policy meetings of major central banks. Gold held steady for the week and is set to face the Fed policy decision next week without too much of a fuss as its attribute as an inflation hedge would keep gold prices elevated for longer.

The European Central Bank and Bank of Japan held monetary policy meetings on Thursday and as expected, kept their accommodative stance. The Federal Reserve may however not be as accommodative given the spectre of rising inflation in the US.

The yellow metal, which had regained its perch above US$1,800 an ounce earlier on during Asian trading hours last Friday, fell below the key level after US Fed chair Jerome Powell said that he expected inflation to ease next year and that the US was on track to begin winding down stimulus. Gold prices later this week pared losses from the knee-jerk reaction.

Several smaller central banks, from Norway to South Korea, have already hiked rates. Even Singapore surprised the market by tightening its monetary policy this month. As central banks make adjustments or tone monetary policies adopted during the pandemic, any surprise to these adjustments would be volatile for financial markets.

This week also saw investors looking at physical demand to support prices. The World Gold Council (WGC) published its Q3 Gold Demand Trends report which noted that India's gold demand could strengthen significantly in the fourth quarter, with a drop in global prices and the release of pent-up demand expected to lift jewellery sales during the peak festive season with Deepavali ahead. WGC said gold demand jumped 47 per cent in the third quarter from a year earlier to 139.1 tonnes as jewellery demand surged 58 per cent to 96.2 tonnes.

Technical analysis for Comex December Gold Futures (GCZ21)

Although gold prices have rallied significantly from recent lows at US$1,720 during the course of the month to test resistance at the 200-day EMA at US$1,810, prices remain prone to sell-offs on a rally or spike. Last Friday we had another massive sell-off just above the 200-day EMA as had happened four times in the past 3 months. The GC December gold contract had been forming market highs lower and lower since the beginning of the year. From a technical perspective, this is considered a prelude to a bearish market.

December Gold needs to break through these recent tops to justify attention, but the acid test for its resurgence lies in challenging the US$1,840.

With concerns that inflation may not be transitory as central bankers have claimed, gold as an inflationary hedge this month has seen buying support at the US$1,745 level. Further lower, the US$1,720 seems to be a comfortable base level for gold bugs to make a stand.

• The writer is senior manager, commodities, Phillip Futures