Gold: Downtrend persists below 200dma – Societe Generale

Gold prices dipped below $4,200 on Monday, marking its lowest point since August 5, as the market reacted to a bearish outlook fueled by US Federal Reserve signals and geopolitical tensions. The hawkish remarks from the Fed this month have kept US bond yields high, nearing multi-year peaks. Geopolitical uncertainties, particularly the ongoing Middle East crisis, have also contributed to a flight from commodities like gold.

Recent developments, such as US President Donald Trump's rejection of an Iranian proposal and the Houthis' attacks on Saudi Arabia, have further reinforced the need for a geopolitical risk premium. This, combined with the prospect of further Fed tightening due to oil-driven inflation fears, has bolstered the US Dollar and put additional downward pressure on gold.

The Federal Reserve's dual mandate to maintain price stability and full employment has led to interest rate adjustments as a primary tool for achieving these goals. The Fed's decisions, made during eight policy meetings each year, are influenced by the Federal Open Market Committee (FOMC) and a panel of twelve officials. In cases of extreme economic distress, the Fed may employ quantitative easing (QE), a policy measure that increases credit flow and weakens the US Dollar.

Conversely, quantitative tightening (QT) occurs when the Fed reduces its bond purchases, potentially strengthening the US Dollar. The current economic climate, marked by inflation risks, geopolitical tensions, and the Fed's rate hike expectations, has led to gold's decline and reinforced the safety of the US Dollar.