By BAS KOOIJMAN*
Gold prices have been seeing some volatility during the last few trading sessions as some uncertainty affected global investors’ expectations. While sentiment improved to a certain extent after the resolution of the US debt issue and as Japan saw stronger growth, other factors such as weaker economic data in China and other countries have increased doubts over the direction of the global economy.
The risks that emerged during the lead-up to the resolution of the debt ceiling issue could leave some investors more cautious regarding their investment choices in the future and could favor gold and other safe assets for some time. However, the averted catastrophe could see investors move to more risky assets which could put pressure on gold prices to a certain extent.
Over the longer term, gold could continue to see some support in particular if central banks expand their purchases. Central banks could shift part of their reserves toward gold with the dollar coming increasingly under pressure and seeing competition from other assets.
Over the short term, gold prices could continue to see strong volatility with major central banks’ meetings scheduled next week. The Federal Reserve and the European Central Bank are poised to decide on their interest rates while the former is expected to pause its rate hikes and the latter could raise rates.
In the meantime, traders could remain cautious while gold prices could see some pressure from rising bond yields. Traders could monitor central banks’ rhetoric for any clue on the direction of interest rates and their impact on gold prices.
*Bas Kooijman, Chief Executive Officer at DHF Capital, a Luxembourg based securitization company established in December 2020 for well-informed personal or institutional investors.