Gold Monthly Forecast – October 2017

Gold had a pretty difficult month and it ended the month much lower from where it began and the way that the prices corrected towards the end of the month showed that the gold traders should be ready for further weakness in the month ahead. The weakness was mainly due to the fact that the risks have receded in the markets during the month of September and this has led to the flow of funds from the safe havens like gold and silver and into the stock markets during the month. It will be interesting to see how low it can go in the coming month.

Gold Prices Move Lower

The gold had an interesting month during September as it moved higher during the early part of the month and at one stage, it looked as though it might shoot much higher. The first half of the month was dominated by the weakness in the dollar and the rise in global risks and both these factors played into the hands of the gold bulls who took full advantage of the situation and pushed the gold prices towards the 1340 region during this period.

The dollar was on the backfoot due to the weak incoming data which placed doubts on whether the Fed would indeed hike one more time later in the year. This placed some pressure on the dollar which helped the gold prices through the 1300 region. Then there was the customary threats from North Korea which have become standard practice every 2 weeks. During September, we saw the US and North Korea trade threats and North Korea even went ahead and said that the US had declared war on it and hence it deemed fit to take action against the US as and when it though it was necessary.

This led to an increase in the global risk which helped the gold prices move even higher. But towards the end of the month, the market seemed to have got used to the threats from North Korea so much that any further threats from them led to a rush higher in gold prices which were quickly corrected within a day as the market sold off. We also saw the dollar rebound towards the end of the month and a combination of these helped the stock markets around the world to move higher and led to the gold prices crashing back through 1300 and ending the month in the 1280 region.

Prices Likely to Stay Weak

Looking ahead to the coming month, we expect the dollar to continue its rebound in the month of October. This is likely to keep the gold prices under pressure during this period. On the other hand, the global risks are never too far away with both Trump and North Korea being very much used to issuing rhetoric statements that disturb peace in the Korean region. So, the traders in the gold market need to keep their fingers ready on the trigger always as we do not know which day either of these countries would issue statements against the other which could lead to an increase in market risk and hence a rise in gold prices.

It has also to be noted that with the markets getting used to this routine, any increase in gold prices due to such increase in risks should be viewed as an opportunity for the bears in gold to sell on higher prices. The 1300 region is likely to now serve as a strong resistance and if the weakness in the gold prices continues, any bounce towards this mark should be used to sell.

We expect the gold prices to continue to weaken during the course of the month but the exact nature and amount of weakness will be known during the first week of the month when the employment data from the US comes out and this is likely to determine the short term direction. If the data comes out strong, this would confirm the rate hike in the US in December and this could lead the dollar higher and the gold lower.