16.09.202114:09 Forex Analysis & Reviews: Gold prices decline and prepare to hit 1-month low

Gold failed to benefit from the US dollar plummet on Wednesday. The safe-haven asset prices fell sharply under pressure from encouraging macroeconomic data from the US.

The US Industrial Production report for August was released yesterday. The report showed that the Industrial Production index rose by 0.4% compared to the previous month. Production capacity also demonstrated an increase. Its index resulted in more than 76% and reached the highest reading since December 2019.

The Federal Reserve Bank of New York published its Empire State Manufacturing Index that also showed strong data. This month the index bounced to 34.3. Economists had expected a moderate rise to 17.2.

Riding a wave of optimism about the US economic recovery, major US stock indices showed growth on Wednesday. However, the increase in investors' appetite for risky financial instruments reduced the demand for safe-haven assets including gold.

Additionally, a rise in the yield of 10-year US bonds affected the price of gold. The yield recovered to 1.311% after falling on Tuesday.

Amid these circumstances, gold began to weaken and did not break above the psychologically important level of $1,800. The bullion closed at $1,794.80 on the New York COMEX. The gap with the previous close amounted to $12.30, or 0.7%. This is exactly the same amount that the asset added in price on Tuesday when it reached an almost 2-week high.

The surge in gold this week was triggered by the release of data on consumer prices growth in the US. In August the reading was 0.3% against 0.5% in July. The weakening inflation rate allowed investors to assume that the US Federal Reserve will not rush to tighten monetary policy.

As a result, the dollar declined after this news. The US currency continued to decline on Wednesday, despite the positive macroeconomic data. The inflation report had a negative impact on the dollar index. Yesterday the greenback fell by 0.1% to 92.53.

Meanwhile, the analysts draw attention to the confusing sentiment in the market. There is another forecast on the Fed's monetary policy. Some investors believe that the Fed will begin tapering this year despite the inflation weakening.

The Fed may start the tapering procedure earlier if the US economy continues its sustainable recovery. Market players raise the alarm every time positive data are released. So, it happened yeasterday.

The panic about earlier tapering is seen on Thursday. Today, gold is still falling, increasing its losses. At the time of writing this article, gold was trading close to a one-month low of $1,780.

Investors are waiting for the publication of the US retail sales report, as well as the unemployment claims data. However, the results of the upcoming meeting of the US Federal Reserve System may have the biggest impact on gold prices.

The event will be held next week. It is believed that the Fed will announce a specific date of the beginning of the tapering. However, not all analysts share this thought. For example, Carlo Alberto de Casa from Kinesis Money believes that the Fed will not give any clear timings and this issue will be postponed again for an indefinite period.