- Gold Prices has plummetted in the wake of a hawkish twist at the Fed.
- Bulls are now stepping in at the lowest levels since April and steepest daily drop since Jan 2021.
Update: Gold (XAU/USD) extends bounce off May’s monthly low to $1,785, up 0.65% intraday, during the early Friday’s trading. In doing so, the gold traders track mildly bid S&P 500 Futures, as well as a pullback in the US dollar index (DXY), to portray the consolidation near the multi-day low. The recovery moves could also be attributed to the key support structure on the monthly chart near $1,765-70. It should, however, be noted that the lackluster moves of the US Treasury yields and a light calendar, coupled with dead news feeds, probe the gold buyers.
It’s worth noting that gold dropped during the last five days on a stretch as concerns relating to the Fed’s bond-purchase tapering and rate hikes gain momentum. Though, downbeat inflation expectations seem to offer intermediate bounces.
Previous updates....
Update: Gold (XAU/USD) snaps a five-day losing streak, up 0.12% around $1,775, amid a sluggish Asian session on Friday. The yellow metal dropped to the lowest since early May the previous day as the market’s rush to risk-safety, after the US Federal Reserve’s (Fed) rate hike signals, put a safe-haven bid under the US dollar and negatively affected gold prices.
However, a lack of major catalysts and increasing odds favoring the US President Joe Biden’s infrastructure spending plan passage seem to recently trigger gold’s corrective pullback from the key monthly support structure ranging from 2011 around $1,760-65. That said, S&P 500 Futures rise for the first time in three days, up 0.12% around 4,218 whereas the US 10-year Treasury yields seesaw near 1.51% by the press time.
Given the lack of major data/events in Asia, sentiment-related headlines and the market’s consolidation to the Fed-led moves will be the key to forecast gold’s immediate direction.
Gold prices collapsed through daily support by over 5.2% since Fed Chair Powell described this week's Federal Open Market Committee meeting as the 'talking about talking about' meeting.
Gold bugs now fear that members are now seeking a plan to reduce the pace of QE and they have started to bail ship.
Crucially, the members are also bringing forward their projections from flat to +50bp in rate hikes by end-2023.
The combination has continued to percolate through markets with knee jerk reactions in the US dollar.
The DXY has powered ahead is trading at the highest since April 13, taking on the 92 level with a high after easily breaking above the 200-day moving average near 91.538.
Bulls now have sights on a test of the March 31 high near 93.437.
However, one of the key takeaways from the meeting for gold markets was the reaction in the 10-year breakeven inflation rates that are down 6 bp on the hawkish hold.
''That is, the market has even more confidence that the Fed won't let inflation get out of hand. With the 10-year yield up 7 bp, the real yield has risen 14 bp to -0.76%, the highest since April 19. This is dollar-positive and we think there's room to go even higher,'' analysts at Brown Brothers Harriman explained.
The PCE factor and uncertainty among the members was an important takeaway also.
Analysts at TD Securities explained that this suggests ''the Fed isn't behind the curve by any means, which leaves us in a scenario where the upside story for gold is tied to an unwind of Fed pricing that is too hawkish.''
''If inflation turns out to be truly transitory, the Fed should be happy to walk the hiking signals back. Unfortunately for gold bugs, underlying inflation trends will remain distorted for months — which removes the immediate impetus for buying the yellow metal,'' the analysts explained.
''Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the pullback has room to run. However, CTAs are only set to add to their shorts below $1740/oz.''
Gold technical analysis
Meanwhile, from a technical perspective, the bulls are stepping in at a critical area of support.
This is a key area of liquidity that dates back to 2011.
Bulls have started to pick the low hanging fruit in New York following the final shakeout of weak hands.
The bid comes in ahead of the last day of the week as squaring of books would be expected to see profit-taking ramp up.
Daily chart
From a daily perspective, the price would be expected to correct at least to the prior structure with a confluence of the 38.2% Fibonacci retracement area.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD regained the smile…and the 200-day SMA
AUD/USD added to the positive start to the week and extended its bullish performance, surpassing the 0.6600 barrier and putting the critical 200-day SMA to the test.
EUR/USD rallies on Greenback weakness heading into US presidential election
EUR/USD benefited from a broad-market decline in the US Dollar as global markets brace for early polling outcomes from the US presidential election that kicked off on Tuesday. Fiber jumped two-thirds of one percent to claw back above the 1.0900 handle as investors hope for a market-positive outcome.
Gold gleams US election fears and soft US Dollar boosts prices
Gold prices increased during the New York session as Americans kept going to the polls amidst one of the closest of the US presidential elections this century. Risk appetite has improved, yet the golden metal post gains of over 0.22% due to uncertainty linked to election jitters and the Middle East.
XRP could rise to $0.5608 despite weak on-chain data
Ripple's XRP is trading near $0.5140 on Tuesday following declines in several of its on-chain data, which indicates declining investor interest. The remittance-based token could rally toward $0.5608 after crossing above the upper trendline resistance of a symmetry triangle.
US election day – A traders’ guide
Election day volatility: Brace for potential wild market swings. Election days bring opportunities, but also risks. Unclear results can increase volatility further.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.