Gold prices rebound on Friday in Asia but are at risk of further correction as markets waited for guidance from the Federal Open Market Committee’s (FOMC) meeting next week, on when the Federal Reserve begins to taper stimulus.
Spot gold rose 0.26% to $1,758.27 per ounce, while gold futures traded higher 0.12% to $1,758.85 per ounce. Spot gold and gold futures dropped more than 2% on Thursday, pressured by unexpectedly stronger US retail sales data despite the resurgence of Covid-19.
The preliminary August report showed an increase of 0.7% in overall retail spending, beating economists’ median forecast of 0.7% decline overall.
“This raised concerns of an early taper by the Fed while pushing the USD [US dollar] higher. Investor appetite for the precious metal subsequently suffered,” wrote analysts at ANZ Research in Friday’s note.
FOMC’s meeting is scheduled from 21 September to 22 September.
Gold has erased its gains this week after it briefly broke the $1,800 level the previous week.
Saxo Bank in its note on 16 September said that spot gold “looks increasingly in danger of a bigger correction after investors failed to respond positively to the post-CPI drop in US Treasury yields.”
“Ahead of next week’s FOMC, the market could be softening with no obvious trigger for renewed demand seen before, perhaps apart from surging energy prices giving rebirth to the reflation trade,” said Saxo Bank.
Despite expected softer prices, ANZ Research noted that physical demand for the precious metal is robust, supported by strong buying from central banks. Consumer demand is also improving in China and India.