Gold prices rose more than 1% ($22) during Monday trade, as global equity markets sold off on concerns of an overdue correction – the Nasdaq 100 and the S&P 500 fell 3.4% and 2.75%, respectively.
Markets were spooked by S&P ratings downgrading Chinese real estate giant Evergrande Group’s $300 billion of debt, and for taking the view that they are imminent to default. The potential spillover effects from Evergrande, along with some nervousness over the U.S Fed’s September FOMC meeting, roiled stocks and the Dollar – the Dollar Index (DXY) fell about 0.26%.
Gold is the standard for protecting against currency depreciation, especially the U.S Dollar, which it’s priced in internationally. As a result, the prices of the two monies tend to have an inverse relationship, which is also why we saw gold move up as the greenback slid at the start of the week.
Gold prices have been trading in a range between key support at $1,750 and the psychologically important $1,800/oz level. On Tuesday, the safe haven asset staged a short intraday rally – bouncing off $1,744 and reaching $1,766/oz – it’s looking to bounce from six-week lows and find sustained buying to drive it back up above $1,800.
Markets direction, however, will likely be driven by the U.S Fed’s interest rate decision (Wednesday), and a pandemic recovery discussion by Fed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida on Friday.
The yellow metal was last seen trading at $1,762/oz.