Gold Price Slips to Key Support as Fed Rate Risks and GLD ETF Outflows Build

Gold has come under intense pressure this month and is now trading near an important support level, as the risk of Federal Reserve rate hikes and ETF outflows builds. It ended the week at $3,883, just above the key support level of $3,852. It has slumped by more than 30% from its high for the year.

Federal Reserve and GLD ETF Risks

Gold has been in a strong sell-off this year, and the situation may get worse as US bond yields continue rising. The benchmark ten-year yield has jumped to 5.12%, while the five-year has risen to 4.92%. 

These yields have soared after the US published strong GDP, jobs, and inflation numbers, raising concerns about the next moves by the Federal Reserve. A recent report showed that the economy expanded by 3.4% in the third quarter, higher than expected.

Another report released this week showed that US inflation held steady last month. The headline Consumer Price Index (CPI) rose 0.4% and 0.3%, respectively. Similarly, the headline and core producer price index (PPI) have continued rising last month.

These numbers give the Federal Reserve an incentive to hike interest rates at its coming meeting. The odds of a December hike have jumped to more than 90%, while investors are increasingly betting that the Fed will hike again in January. 

Gold tends to underperform when bond yields and the odds of a Federal Reserve rate hike are rising. This dynamic likely explains why demand for gold ETFs has waned. The SPDR Gold Shares ETF (NYSE:GLD) has had $1.53 billion in outflows over the past 30 days. Similarly, the iShares Gold Trust (NYSE:IAU) has seen more than $383 million in outflows.

These factors have made gold less attractive even as its fundamentals, including the rising US public debt, have worsened. The US public debt has jumped to over $40.6 trillion, a few months after it crossed the $40 trillion mark.

Gold Price is at Risk of a Deeper Dive if Key Support Fails to Hold

Gold price chart | Source: TradingView

On the daily chart, gold has been in a steep downtrend since peaking at $5,600 in January. It recently dropped below the key support level of $3,958, its lowest point since June.

Gold has now reached another key support, which was its low on November 2. A move below that level would signal that bears have taken control and could lead to more downside, potentially to $3,500. It would also invalidate the double-bottom pattern that has been forming.

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