Gold erases most of the Treasury-led gains as Fed Chair Warsh retightens financial conditions
FUNDAMENTAL
OVERVIEW
Gold
sold off on Friday after Fed Chair Warsh delivered a hawkish speech at the
Jackson Hole Symposium.
The key passage was him
saying “I would be hard pressed to describe broad financial conditions as
restrictive". The market interpreted that as him leaning against the
recent easing in financial conditions and, therefore, retightened them.
This process has,
of course, extended the corrections in the “debasement" trades, with gold
basically returning to pre-US Treasury announcement levels. The rate hike
probabilities for the September meeting have also increased, with the market
now seeing roughly a 60% chance of a hike.
Warsh has also reiterated that the Fed is focused solely on inflation now
and mentioned that the progress has been slow. For this reason, I think only a
soft US CPI report could bring the probabilities below 50% and deter the Fed
from hiking at the upcoming meeting.
If the
probabilities stay at or above 50%, the Fed might be forced to hike regardless
because failure to do so would send a dovish message and ease financial
conditions again.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that Warsh’s hawkish speech triggered a selloff as financial conditions
retightened. The next key support should be around the 4,311 level where we
have also the major broken trendline for confluence. If the price gets there,
we can expect the buyers to step in with a defined risk below the support to
position for a rally into the 4,890 level. The sellers, on the other hand, will
want to see the price breaking lower to increase the bearish bets into the
3,885 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we can
see the price fell below the upward trendline and extended the drop as more
sellers piled in on the breakout. There’s not much we can glean from this
timeframe, so we need to zoom in to see some more details.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we can
see the bearish momentum waned a bit and we now have a swing high around the
4,475 level that could act as minor resistance. If the price pulls back into the
swing high, we can expect the sellers to step in with a defined risk above the
resistance to keep targeting the 4,311 level. The buyers, on the other hand,
will look for a break to pile in for a rally into the 4,550 level next. The red
lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we have the
US ISM Manufacturing PMI and the US Job Openings data. On Wednesday, we get the
US ADP report. On Thursday, we have Fed’s Waller, the US Jobless Claims and the
US ISM Services PMI. On Friday, we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.