Gold Bounces Back After Sharp Plunge but Remains Under Strain

Sep 26, 2021 | Blog

Gold Bounces Back After Sharp Plunge but Remains Under Strain

At the beginning of Asian trading on Monday, gold took a sharp plunge which it has seemingly rebounded from; however, it remains under pressure. Our tax lawyers in San Francisco speculate that this may be due to the Federal Reserve rolling back its enormous monetary stimulus.

Early Monday morning, spot bullion plummeted more than four percent, dropping $60 in just minutes. This came on the heels of the higher-than-anticipated employment data that was released when trading started on Friday. Additionally, low liquidity was experienced on the same day thanks to holidays in Singapore and Japan. Adding to this strain was the dollar index perking up to a two-week high last week.

Gold Still Under Strain Despite Quick Bounce Back

Gold is still under pressure, even though prices rebounded quickly from the original drop. Robust employment numbers from the United States helped gold break out of a lengthy trading range at approximately $1,800 an ounce. Friday’s data put stress on non-interest-bearing gold as well, after inflation-adjusted Treasury yields spiked earlier that day.

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Outlook for Gold Bullion May Be Grim

This fresh slump points to a potentially negative forecast for bullion. This is based on concerns that the hefty rebound in America’s job market could motivate the Federal Reserve to put the reins on economic support measures. Some tax attorneys and financial planners agree with this philosophy.

Gold Recovered, but Some Fear Fed Will Begin Tapering Bond Purchases

By 12:20 p.m. in London on Monday, bullion fell 1 percent at $1,745.31 an ounce. Earlier, it touched its lowest since March and was also nearing its lowest point in over 12 months. In a 60-second window, over 3,000 contracts changed hands in the futures market as well, as activity spiked during a normally calm trading period. According to tax planning professionals, this is comparable to more than $500 million notional value.

In the course of trading, the metal revived as those looking for bargains made a quick move to take advantage of the lower cost to enter the market. Falkmar Butgereit, senior trader at Heraeus Metals Germany GmbH & Co., stated that numerous investors are now afraid that the Fed will begin tapering bond purchases and concerned about subsequent interest-rate hikes in 2022 and 2023.

Economic Data Coming Soon to Gauge the Country’s Recovery from Covid 

Later this week, all eyes will be on newly-released economic data to measure inflation, as well as the status of the country’s recovery from the Covid-19 pandemic. Some experts think that today’s consumer-price index will show a lesser hike than last month’s, as demands on supply chains resulting from re-openings decrease. This somewhat supports the position taken by the Fed that inflationary pressures will prove merely temporary.

Delta Variant in the United States

It is possible that the surge of the Delta variant of Covid-19 in the United States may significantly complicate the economic rebound of the country in general. New cases of this virus strain have risen to an average of more than 100,000 per day, which is essentially a giant step back to the levels experienced six months ago during the winter surge.

Trends in Other Markets

In different markets, silver lost 1.5 percent after previously hitting its lowest point since December. Palladium and platinum both declined as well. There was little change for the Bloomberg Dollar Spot Index, following its best gain in approximately 30 days on Friday.

Investors with concerns about back taxes or wage garnishment should contact one of our tax lawyers in San Francisco for advice about the best way to address these issues.