In the bullion market functions, it appears to be predominantly driven by major central bank catalysts in the recent month with both the BoJ and ECB broadly disappointing on easing policies relative to outlook while the Fed delivered a more hawkish than-anticipated to the hold decision.  

However, even with some of the more hawkish rhetoric, the markets digested the news and ultimately decided the beginning of the end of easy money had yet to fully arrive.  

Consequently, the gold prices went up vigorously, rallied nearly $30/oz briefly breaching $1,340/oz post-FOMC but remained range-bound for the rest of last week before giving back a lot of the rally in the last couple days. We all know that this previous yellow metal is more sensitive to shifts in U.S. funds rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

While the markets at least initially seemed to confidently brush away the notion that these moves were signalling the end of easy money, we are slightly less convinced. Our main concern is that the BoJ and, to some extent, the ECB are potentially beginning to reach their limits, due to either capacity or political constraints.  

Gold has recently needed more and more encouragement to trade higher and now with all the September central bank decisions in the rear view mirror the risks of gold trading lower rather than higher in the next three months has risen, in our opinion, adding downside risk to our Q4’16 price forecast.  

While we still believe the upcoming US election could lead to some upward pressure in the upcoming month, from a trading perspective we will be looking to exit at least some of our more tactically-recommended near-term length on any short-term rallies.

Given the relative lack of foreseeable catalysts, the outlook for the metal in the short-term remains indistinguishably linked to the US interest rate expectations, the expectation of a US rate hike in December has the potential to drag gold prices sub-$1,300/oz on a spot basis in Q4.