Gold Price Forecast: November Selloff Warns Of Shift In Market Behavior

The price of gold appears to be moving to the beat of its own drum as the precious metal trades at its lowest level since July while the US Dollar Index (DXY) seems poised to challenge the yearly low set on September 1 (91.75), and the low-interest environment along with the ballooning central bank balance sheets may no longer provide a backstop for bullion amid headlines that US President-elect Joe Biden will nominate former Federal Reserve Chair Janet Yellen to be the next Treasury Secretary.

Even though Treasury Secretary Steven Mnuchin lays out plans to scale back the emergency lending facilities, the Biden administration may take a more proactive approach in supporting the US economy as the ‘Build Back Better’ initiative pledges to “provide further immediate relief to working families, small businesses, and communities.” As a result, the agenda for another fiscal stimulus package may encourage the Federal Reserve to endorse a wait-and-see approach at its last interest rate decision for 2020 as Chairman Jerome Powell and Co. “assess how our ongoing asset purchases can best support our maximum employment and price-stability objectives as well as market functioning and financial stability.”

It seems as though the Fed will continue to utilize its balance sheet to support the US economy as the central bank plans to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace,” and it remains to be seen if the Federal Open Market Committee (FOMC) will unveil a more detailed forward guidance at the next interest rate decision on December 16 as Chairman Powell and Co. are slated to update the Summary of Economic Projections (SEP).

Image of IG Client Sentiment

Nevertheless, the net-long US Dollar bias from earlier this year has resurfaced as the IG Client Sentiment Report shows retail traders net-long USD/CHFUSD/CAD, and USD/JPY, while the crowd is net-short GBP/USDAUD/USDEUR/USD and NZD/USD.

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