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Commodity Snapshot video

CMC Markets

Hello. Welcome to this week's CMC Markets Commodity Snapshot with myself Jasper Lawler. We're basically asking the question, can gold go below $1,000 if the Fed Reserve decides to hike rates? So the premise we're working on here is that a hike in interest rates and rising interest rates in the U.S. is bad for gold. So the idea there is that gold doesn't yield anything, so if yielding assets are yielding more, it becomes relatively less attractive. Also if the Fed are raising interest rates, it means they're trying to combat future inflation, so we're less likely to get runaway inflation and so gold as an inflation hedge is less necessary. That premise, of course, could be wrong. Gold may actually be sought after, like it has been in the past few weeks because, if stock markets start to fall off, gold is actually a safe haven, and so the Fed hiking interest rates and causing a stock market crash may mean that actually gold prices can go up.

Background to Interest rate and Gold influence

Of course, the Fed could also be too late to combat the higher inflation. They may be a bit behind the curve, which a lot of people are saying they are. So then future higher inflation, again, would be a reason to hold gold. So this premise is not necessarily going to hold true, but so far it has. Gold is well off its highs since the Fed Reserve has first indicated it was going to stop the pace of its monetary easing. Now that we're actually at the stage, potentially next week the Fed are going to hike interest rates and tighten policy for the first time in many years.

Monthly Gold chart

So just taking a look at this monthly chart for gold, it's these two key lows that form this 1180 support turned into resistance, that we're really paying attention to. We dropped down through there quite convincingly in July. August, we bounced up towards it but we failed to break back above it. Now we're heading into September, when the Fed could potentially be hiking rates, and we're starting to fall away again. So looking further down on the monthly chart, you can see it is this $1,000 per ounce level that you can see right in these March 2008, January 2009 peaks that have formed that potential support, which we would be potentially aiming towards, should we continue this down move.

Daily Gold Chart

Now jumping over to the daily chart, a slight shorter timeframe, you can see yesterday's price action took us below this recent support level. Here we're seeing momentum start to turn to the downside. This safe-haven status that gold had had, during the market turbulence, starting to give way and signs that maybe the lows of the year are going to get taken out. In which case we are looking towards that $1,000 per ounce. The question is, do the Fed hike rates and can this cause this breakdown in gold that we're already starting to witness? That's it for this week's CMC Markets Commodity Snapshot. We were, of course, looking at gold and looking forward to the main event, which is next week on Thursday 17th September, which is when the Fed are deciding on their monetary policy and potentially hiking interest rates. If they do hike, then is that $1,000 per ounce in gold that we're looking towards?

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