Gold extended the
selloff yesterday as the hawkish repricing continued to weigh on the precious
metal amid rising real yields and stronger US dollar.
As a reminder, the
drop was triggered by the surprisingly hawkish remarks from Fed’s Waller where not
only he said that he would vote for a rate hike in December regardless of the inflation
data but he also put on the table a 50 bps hike in case the data came in higher
than expected.
The losses then
extended after the US CPI came indeed hotter than expected and raised the
probabilities for a 50 bps hike. Fed’s Hammack spoke after the CPI data and she
also left a door open for a larger rate hike. At the moment, traders are
pricing in just a 12% chance of a 50 bps hike but the probabilities could rise
further in case more Fed members support such a move or don’t push back against
this possibility.
Meanwhile, the US-Iran
negotiations remain at a stalemate. The WSJ reported that US Vice President
Vance is considering face-to-face talks with a top Iranian security official in
an effort to end the war.
In separate
reports, Iranian senior officials believe the US is planning either further
military strikes or an ever-tightening economic pressure to push Iran into
retaliatory actions. Overall, there’s understandably lots of mistrust, but it
reinforces the view that a deal is not as near as the market expected.
Looking ahead, I
would expect rate hikes to put even more downward pressure on the stock market
and long-term Treasury yields amid increased growth concerns, barring an end to
the Iran war. This could ultimately be positive for gold.
Keep in mind that
in the current context, if Trump decides to escalate the war, inflation
expectations would rise alongside weakening growth outlook, creating a
stagflationary environment. This should be bullish for gold. At the same time,
if we get a de-escalation, we could see a dovish repricing on easing inflation
concerns, which should also support gold in the short-term.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold (CFD contract) fell back
below the broken trendline and it’s now targeting the 3,885 support where we have
also the major upward trendline for confluence. We can expect the buyers to
step in around the support, with a defined risk below the upward trendline, to
position for a rally into the 4,700 level. The sellers, on the other hand, will
want to see the price breaking lower to increase the bearish bets into the 3,500
level next.
GOLD
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see that the selloff extended further after the price broke below the minor 4,040
support and the upward trendline. We now have a downward trendline defining the
bearish momentum. If we get a pullback, we can expect the sellers to lean on
the trendline, with a defined risk above it, to keep targeting the 3,885
support. The buyers, on the other hand, will look for a break higher to pile in
for a rally into new highs.
GOLD
TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the sellers will have a better risk to reward setup
around the downward trendline, while the buyers will need to wait for the price
to come into the 3,885 support or break above the downward trendline to start
positioning for new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures. Tomorrow,
we conclude the week with the US PPI data.
This article was written by Giuseppe Dellamotta at investinglive.com.
