Gold extends losses as Fed tightening risk continues to push real yields and dollar higher
FUNDAMENTAL
OVERVIEW
Gold has extended the losses this week as the fallout from the hawkish Fed
decision continues to push real yields and the US dollar higher. We haven’t got
any meaningful catalysts since FOMC, so the markets continue to run by inertia.
As a reminder, the Fed delivered a hawkish surprise by projecting a rate
hike this year (the consensus was for no cuts or hikes). The market increased
rate hike bets with now 42 bps of tightening priced in by year-end. There’s a 36%
chance of a hike already in July and 72% probability of a move in September.
The economic data and financial markets will now guide the Fed as Warsh
stated that “financial markets perform best when they react to incoming data
and are less efficient when they have to ask how the Federal Reserve will react
to the incoming data”. He added that “financial markets are the most important
source of information to guide the central bank”.
Trump also posted on Truth Social and, unlike his usual stance under Fed
Chair Powell, did not object to the Fed’s decision. In fact, he said that “rate
hikes could happen,” which sounds like a green light for Warsh and the Fed to
do whatever they deem necessary.
The signal is that the Fed is finally looking to deliver on its price
stability mandate and bring inflation back to the 2% target that it’s been
missing since 2021. If the data says they need to hike, they will. This
should keep weighing on gold at least until the next set of economic data. For a decent pullback, gold will need soft US data in the next weeks to trigger a dovish repricing that pushes real yields and the US dollar lower.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold extended the fall this week and continues to target the 3,885
level. If the price gets there, we can expect the buyers to step in with a
defined risk below the level to position for a rally into the major downward
trendline. The sellers, on the other hand, will look for a break to increase
the bearish bets into the 3,500 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we have
a downward trendline defining the bearish momentum. If we get a pullback into
the trendline, we can expect the sellers to lean on it with a defined risk
above it to keep pushing into new lows. The buyers, on the other hand, will
want to see the price breaking higher to increase the bullish bets into the
4,600 level next. The pullback into the trendline might need soft US data in
the next few weeks as that should trigger a dovish repricing leading to a drop
in real yields and the US dollar.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline. The sellers will likely continue to lean on it
with a defined risk above it to keep pushing into new lows. The buyers, on the
other hand, will want to see the price breaking higher to pile in for a
pullback into the 4,200 level next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we get the US
Jobless Claims data and the US PCE report. On Friday, we conclude the week with
the final University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.