Gold Rebounds But Bearish Risks Remain

Gold prices regained some ground in early trading on Friday, recording a 1% uptick during the Asian trading session. This bounce comes after a major sell-off that followed the release of inflation data showing that average prices of commodities were still ticking up and the Fed could most likely tighten monetary policy further when it meets in about two weeks.

Inflation that came in hotter than had initially been expected has brought the Fed into sharper focus as monetary policy is expected to remain hawkish and weigh on gold. This scenario is especially of concern to investors who see continuing rises in crude oil prices as a sign that inflation is bound to persist and warrant additional rate hikes in the U.S.

On a brighter note, yields on Treasuries have eased to some extent and the dollar has shed some of its momentum. These developments have provided a breather for gold prices at a time when bullion markets were facing a combination of headwinds.

The drop in gold prices would have been even steeper if central banks had not continued acquiring the metal. This institutional buying has put a damper on how far gold prices would have fallen. However, central banks on their own are unlikely to reverse the current bearish tendencies present in the gold market.

Instead, purchases by central banks are helping to slow down the losses happening in gold prices. It remains to be seen whether this floor provided by these institutional buyers will be sufficient to support prices until bulls regain control.

A close examination of gold charts reveals that the precious metal has been trading within a relatively wide price range of $4,100 to $4,170. Each time prices have dipped below this range, buyers have jumped in and pushed them back up. However, prices have struggled to go past resistance at about $4,185, making this price level a key point to watch.

Should prices go past that resistance level, traders and investors would take that as a signal that prices have resumed their upward trajectory, even if it is just for a while. However, if prices slide below $4,000, many market participants will see that as a sign that gold’s retreat still has further ground to cover before a bottom is reached and a revival begins.

As things stand, traders, investors and enterprises like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) will be standing by for the outcome of the Fed meeting that is just around the corner. If rates are hiked as most people expect and oil remains above $100 a barrel, the current bearish conditions in a structural bull market could persist for a while longer.

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