XAU Eyes BoC Rate Decision as Speculator Confidence Wanes

Gold, XAU/USD, XAU/CAD, Bank of Canada, COT, Speculators – Talking Points

• Gold is unchanged in Asia-Pacific trading after Australian CPI data comes in hot
• XAU/CAD may add to its losses if the Bank of Canada opts to hike rates at 75-bps
• Speculators have grown cold on the gold trade, according to recent CFTC data

Gold prices are unchanged around the $1,650 level in Asia-Pacific trading after posting small gains on Tuesday. A slightly stronger US Dollar and rising bond yields explain the modest selling action. Australian and New Zealand government bonds are selling off, pushing yields higher and sapping the yellow metal’s appeal.

A hotter-than-expected Australian consumer price index (CPI) did little for the Australian Dollar, but it seemed to encourage bond traders to sell. The 7.3% year-over-year headline number boosted hawkish speculation for next week’s Reserve Bank of Australia (RBA) meeting. Cash rate futures show a 100% chance for a 25-basis point (bps) RBA hike, although that is slightly firmer than pre-CPI chances.

The Bank of Canada is due to report its interest rate decision tonight, and rate traders are favoring a 75-bps move. Overnight index swaps reflect a 3-in-4 chance of that occurring. A dovish disappointment, where the BoC hikes 50 bps, would likely provide a tailwind to bullion prices. The Canadian Dollar is up around 2% versus gold since October 1, while the US Dollar has only gained around 0.5% versus the metal. A 75-bps BoC hike may see XAU/CAD close the monthly candlestick at its lowest of 2022.

Gold speculators grew less bullish, according to Friday’s Commitments of Traders (COT) report. The CFTC data for the week ending October 18 showed a 7,051 reduction in speculator longs (orange line), while short speculators (blue line) increased by 14,974. That brought the net long position down by 22,025 to 69k, near the lowest since April 2019. The lack of confidence in the gold trade among non-commercial traders bodes poorly for the yellow metal. Selling into strength may be a diligent move in the short term.

Gold versus COT Non-Commercial Longs and Shorts – Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

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