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Cape Town - Gold is at a critical point at the moment, with all of the direction in price being influenced by what the US Federal Reserve is going to do next month, Wichard Cilliers, director and chief dealer at treasury services company TreasuryOne, said on Monday.
"The sentiment is 'gold negative' at the moment, and it seems that the momentum is holding. Gold's rand price is still looking attractive at R15 000 per fine ounce and could be a good level to hedge in the short term," suggested Cilliers.
He explained that gold is in the firing line because of the anticipated interest rate hike by the Fed in December.
The continued slide in the gold price is almost reversely correlated with the probability of a US Fed rate hike. The fall in the gold price is continuing and it is trading near six-year lows against the dollar.
Cilliers said this happens because non-yielding metals like gold become less attractive for investors should there be yield to be had in a country like the US.
"With this in mind and the last Fed minutes that had a hawkish tone and suggested that the Fed will hike in December, gold is in the firing line to break lower," said Cilliers.
He emphasised that it certainly is not a given that the Fed will indeed hike in December, as some dovish members are still casting doubts on whether it is wise to hike.
"Should the Fed not hike in December, it will show the market that they have been bluffing all the time and will not hike in the foreseeable future. This will inevitably lead to a gold rally and see gold surging in the short term. Should the Fed, however, keep their word, then a run to $1 030 can be expected," said Cilliers.
By late morning on Monday gold was trading 0.56% down on $1 071.80. This is 7.47% down on its price a month ago, 10.62% down on its price six months ago and 20.40% down on its price 5 years ago.
READ: Gold sizzles as dollar releases commodities grip
Cilliers added that, after what he sees as an impressive showing, copper is "being scolded again" with the price dropping to a six-year low.
"The red metal is trading well below the $5 000 per tonne level, with the current price at $4 630. Since May, copper has lost about 25% on the back of the stronger dollar and the Chinese slowdown, keeping the demand for copper down," said Cilliers.
"The terrorist attacks in Paris also did not help the cause of copper as copper is not seen as a 'safe haven' currency like gold and investors shied away from copper."
As for oil, Cilliers said it is also facing its problems with ever increasing supply putting a lead weight on the oil price. Brent Crude is trading below $45 per barrel, down from the 2014 highs of $115 per barrel.
"It is also interesting to note that we have not seen oil trading higher in two consecutive sessions since October. The future for oil is looking precarious as the unusually warm winter in the northern hemisphere has put a further dampener on demand for oil, with the lifting of Iran export sanctions only increasing supply," said Cilliers.
"Expectations are that oil prices will stay suppressed for longer, combined with some pullback in the rand, it will be good news for motorists."
