Although, we woke to a down market in physical gold, Kitco reports that TD Securities seeing consensus that a FED rate hike is coming but a ‘potential for gold to bounce from support levels since the Federal Reserve is likely to remain dovish for the longer term even if there is a rate hike this year’.
We are not concerned about this pullback in the underlying asset. We often see tensions rise before a Fed rate date and CNBC reminds us that Chinese markets are shut for Chinese National Day holidays running from Oct.1-9 which may be tightening up physical demand for gold. Perhaps traders are taking advantage of this opportunity.
We only need to take a look at Mining.com as it quotes Saxo Bank’s head of commodity strategy Ole Hansen: ‘‘while the Danish bank maintains a constructive longer-term view on gold, following the drop today:’.
We see this event as a trading opportunity. Gold futures and options average volume rose 34% year-on-year to 225,000 contracts, with daily volume in silver futures and options up 58% year-on-year to 68,000 contracts it seems that this may be a trader’s play rather than any indicator of long term opportunity.
A drop in prices may interest physical gold buyers, Afshin Nabavi, head of trading at MKS says: ‘The physical guys are looking for lower numbers. Between now and February is the time for the physical market to get busy.”
In any event a tougher day for the commodity but a strong view on the outlook for the precious metal.