FxWirePro: Gold prices unlikely to glitter sharply in Q4, US CPI and euro strength engulfing prospects – Short hedge for aggressive bears

As gold loses its glittering in 4Q, Gold prices pushed back above $1,300 per oz as weaker-than-expected economic data saw investors reduce their probability of a rate hike by the (US Federal Reserve),” ANZ Research said on Monday.

Precious metals recovered smartly in the recent times as the dollar rally failed to extend higher. December rate hike is almost factored into prices and the incremental impact of better economic data on gold remains limited. US inflation remains a concern with core CPI missing forecasts yet again while euro strength dented the dollar further.

The US consumer price index (CPI) and core CPI for last month both disappointed at 0.5% and 0.1%, respectively.

Gold price is usually highly subtle to rising U.S. interest rates, which raises the opportunity cost of holding non-yielding bullion while boosting the greenback.

The dollar held gains against the yen and euro on Tuesday, supported by a rise in Treasury yields following a report that U.S. President Donald Trump was favoring a policy hawk as the next head of the Federal Reserve.

Trump will meet with Fed Chair Janet Yellen on Thursday as part of his search for a new candidate for her position.

The market expectations, however, are quite different. Still awaiting a stronger confirmation of a sustained upward trend in inflation, the market is only pricing in less than two full hikes by December 2018, which seems overly pessimistic given the upbeat economic backdrop.

This complacency on the Fed is mostly due to the fact that the Fed had signaled its rate decisions would be primarily driven by inflation, which until August surprised to the downside over five consecutive months.

A softer dollar can weigh on yellow metal price, whereas dollar robustness reflects the stronger commodity prices.

Comex gold futures dropped to their lowest level at $1,287.30 a troy ounce before bouncing back to trade a shade higher at $1,290.22 by 10:54 GMT.

The repricing is already taking hold. Three weeks ago, the rate markets priced no hikes through 2018; today it’s almost two. December hike probabilities have now risen to almost 63% from 28% just two weeks ago. But we expect more, as a result, gold prices are likely to trim its price gains in the consolidation phase. Hence, we already advocated shorting, we continue to hold shorts in futures contracts of XAUUSD using far month tenors that would encompass above stated fundamental news, thus, stay short Dec’17CME gold.