Market worries about the Fed’s shrinking balance sheet suggest that gold rebounded to $20 after hitting a new low of nearly four weeks. FX678

On Monday (June 14) COMEX August gold futures closed down 0.7% at US$1,865.90 per ounce, a record low in the most recent month; before the Fed meeting this week, U.S. Treasury bonds lost momentum and the market predicted that the Fed meeting might Provide clues for future monetary policy.

Phillip Streble, chief market strategist at Blue Line Futures, said investors may have taken some gold positions before the Fed’s policy meeting that began on Tuesday. The Fed may hint that they will begin to shrink, which should put pressure on gold. He added that the Fed is already “withdrawing” liquidity from the system, which should also put pressure on gold. He was referring to the surge in the size of the Fed’s reverse repurchase operations last week.

Market participants will also take a closer look at the Federal Reserve’s changing outlook for unemployment, inflation and economic growth, as well as the likely date of the first rate hike.

TD Securities analysts pointed out in a report: “We believe that in the case of capital flows that are not particularly supportive, the Fed’s reduction discussions have weakened people’s interest in gold, so we believe that gold prices are at risk of further weakening.

Data from the United States on Friday showed that speculators reduced their net long gold positions on the New York Mercantile Exchange (COMEX) in the week ending June 8.

In late trading in New York City, spot gold rebounded to around US$1866, rising by more than US$20 from the daily low. Independent analyst Ross Norman believes that the key to the Fed’s interest rate decision this week is the extent to which the Fed will pay attention to the immediate issues, that is, inflation and the reduction of bond purchases. The price of gold rebounded strongly after falling below US$1,850 per ounce, indicating that the bears agreed that this support level would at least support the gold price before the Fed’s decision, and they have profited to close their positions.

Commerzbank expects that inflation concerns will push the price of gold to $2,000 per ounce before the end of the year, and that inflation may remain at a very high level before the third quarter, pushing the Fed to reduce its bond purchase program around the fourth quarter.