Gold is one of the most important metals in the world. It has been used as a precious metal for centuries. Today, most of the gold is bought by central banks and large investment banks which hold it for its value. Traders and investors own it as a hedge to inflation and other major disasters. They believe that in case of a major world disaster, gold will be more valuable to own than the fiat currencies like the dollar. In addition, they believe that with the US national debt almost doubling in the past ten years, the dollar will be more valuable if the country is unable to pay its obligations.
This week, after trading within a range, the price of gold fell sharply to a four-week low. This happened after the Fed’s decision to hike interest rates on Wednesday. The Fed also pointed to one more rate increase, possibly in December and three more in 2019. This lifted the dollar because most traders had given up on the future of rate hikes.
However, close Fed watchers have some serious concerns about the reason why the Fed is doing all this. First, while the economy is doing well, there are signs that the growth may slow in 2019 as tariffs start to bite. Second, the Fed is the only central bank raising rates. Why is it doing this? Third, with the yield curve nearing inversion, why is the Fed accelerating this pace?
This means that gold may be a major commodity to watch because of its relationship with the dollar.
The XAU/USD pair fell to a four-week low of 1182. On the daily chart below, the pair’s 10-day and 14-day SMA made a major crossover that is an indication that the downward momentum could continue. If it does, traders will watch out for the important support of 1150.