Gold: Price rebound seen as corrective – Commerzbank

Commerzbank’s Carsten Fritsch notes that the Gold price has rebounded toward USD 4,200 per ounce after steep second-quarter losses, helped by weaker US labour data and reduced rate hike expectations. He argues the move looks corrective after an excessive prior decline and observes that dips below USD 4,000 have been short-lived, suggesting a potential bottoming process.

Rebound after sharp quarterly losses

"The second quarter has come to an end, which calls for an interim review. The gold price fell by 14%, marking its sharpest quarterly decline in 13 years. The decline for the first half of the year amounted to slightly more than 7%."

"The gold price rose overnight to nearly USD 4,200 per troy ounce. Gold has thus recovered by around USD 200 over the last two days and is on course for its first weekly rise in five weeks."

"Hence, the price reaction in gold appears to be exaggerated in light of interest rate expectations. However, the previous price fall was also significantly steeper than could be explained by changes in interest rate expectations alone."

"Furthermore, the price rise had already started before the labour market data was released. The price rise is therefore also a corrective move following the previous excessive price fall."

"It has also become apparent that price falls below USD 4,000 are short-lived, which suggests that the market is bottoming out. As long as expectations of interest rate rises do not increase significantly again, gold is unlikely to fall any further."