Gold, XAU, Market Sentiment, Rates, US Dollar, Fed, Inflation – Discussion Items
- Gold prices rose slightly after a modest overnight recovery amid equity volatility
- The ingot price outlook faces growing pressure, including the Fed and the US Dollar
- The 1,900 level may be the key to the direction, with a breakout likely to trigger deeper selling
Gold prices rose above the 1,900 level overnight, but that didn’t give much confidence to the yellow metal following a sharp fall earlier this week. The Fed’s rate hike has strengthened in recent weeks, pushing higher rates on bullion spending. The market has responded in a risk -free manner, pushing equity prices lower. The fact that gold does not respond to a background of risk reflects a background of worsening prices.
Instead, investors have flocked to the US Dollar, pushing the DXY index to its highest level since March 2020 and within 1% of the 2016 high. At the same time, market-based inflation expectations have subsided. Both are barriers to gold, adding to the negative view of gold. The US 1 -year breakeven rate – the proxy by which the market sees inflation a year out – traded near its lowest level since February at just over 5%. The gauge was up 6% just a month ago when gold traded at 1,958.
The fact that gold did not bounce back despite a large decline in U.S. equity prices and a broader flow of risk relief raises major concerns to move forward. The drop in actual yield, usually a tail wind, doesn’t provide enough juice for more than a very modest bounce today. However, gold does not seem to be an attractive asset to own in the current situation and traders seem to stay away for good purpose. The Fed’s policy decision next week is also unlikely to change the outlook, as the announcement is likely to confirm the hawkish pivot seen over the past few weeks.
Gold Technical Forecast
Gold remained above the 1,900 level after the price fell briefly below a psychologically important level following a big drop earlier this week. If the decline manages to break the net below that level, it will likely open the door for the price to continue sliding. The 100 -day Simple Moving Average (SMA) will immediately shift into focus if that happens, with a deeper decline seeing the 200 -day SMA near 1,833.
Gold Daily Chart
Charts made with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
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