UBS: Gold shows initial signs of stabilization after a 5% drop

UBS released a research report stating that gold prices have fallen about 5% since early September, as stronger-than-expected data and persistent inflation concerns revived expectations that the Federal Reserve will further tighten policy. The bank believes that most of the impact of the recent hawkish repricing is now reflected in gold prices, with initial signs of a more favorable entry point emerging. During this period, the U.S. 10-year Treasury yield rose from about 4.8% to above 5.3%, the dollar index rose from about 100 to above 102, and gold fell from above $4,400 per ounce to about $4,140. This move echoed the hawkish repricing that occurred after Warsh's speech at the Jackson Hole symposium in late August. Resilient economic CKH HOLDINGS labor market conditions challenged expectations for continued easing, leading the market to see a higher probability of another rate hike before year-end, which weighed on gold prices. The bank believes that after this round of adjustment, gold is consolidating around $4,1404,200 per ounce, and the weaker labor market data released at month-end along with the market's somewhat eased expectations for a Fed rate hike in October suggest that the headwinds from monetary policy may begin to diminish. This is not enough to confirm that a solid bottom has formed, but it supports the bank's judgment that the risk balance has become less negative. From a technical perspective, the bank believes that $3,990-4,030 per ounce is the key near-term support range. Although gold prices remain below their short-term moving averages, most of the impact of the recent hawkish repricing appears to have been reflected in prices. A clear break below $4,000 per ounce would mean the correction could deepen further; a sustained rise above $4,2804,320 per ounce would represent a significant improvement in technical momentum and reinforce the judgment that the recent decline is still just a consolidation within a broader uptrend.