Gold: Upside seen as Fed hike bets fade – Commerzbank

Commerzbank’s Carsten Fritsch notes Gold has rallied to its highest level since early June as markets scale back expectations for further Fed rate hikes. He highlights reduced implied tightening in Fed Funds futures, a lower probability of a September hike, and renewed ETF inflows, arguing that Gold retains upside potential even after a brief pullback.

Lower Fed expectations support bullion

"The gold price rose at times yesterday to USD 4,450 per troy ounce, its highest level since early June. Since the start of the month, the gold price has risen by up to 10%. This has been driven by a steady reversal of the excessive expectations regarding Fed interest rate hikes."

"At the end of July, Fed Funds futures were still pricing in a year-end Fed rate of 4%. The figure currently stands at 3.86%. This means that 14 basis points of previously expected rate hikes have been priced out of the market."

"As we expect the Fed not to raise interest rates, the gold price therefore still has further upside potential. The fact that this will not happen in a straight line is illustrated by the price fall since yesterday to USD 4,320 per troy ounce. Another positive factor for the price of gold is the renewed buying interest from ETF investors."

"According to Bloomberg data, these investors have been buying gold over the past six trading days. This is the longest period of uninterrupted ETF inflows since April. The inflows total almost 21 tons."