Today all eyes were on the new Federal Reserve Chairman Jerome Powell, who was testifying for the first time since taking charge. Markets were watching to see if Mr Powell would suggest if there will be more rate hikes than the expected three this year. While he shied away from giving anything specific, he did point out that “each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the meeting.” He added that his personal outlook on the economy had strengthened since December and that he saw inflation was advancing towards the bank’s 2% target. His comments were hawkish and so they caused a sharp sell-off in Treasuries, which pushed the benchmark 10-year bond yield back above 2.9%. As a result, the dollar rallied sharply and noninterest-bearing commodities like gold and silver tanked. Stocks also eased back although their losses were contained.

Could a potential stock market correction save gold?

There has been some suggestions that despite the rising yields and the rebounding dollar that gold will be able to find demand amid concerns over a stock market crash. We don’t entirely agree with this argument. While I think that the stock markets are severally overvalued and soon or later we will see a nasty correction, the bullish exuberance and – dare I say – irrationality could last several further months before that happens. When it does finally happen, this could provide some support for safe haven gold. However, with yields elevated and the dollar on the verge of a potential comeback, there are good reasons why some investors would think twice about holding paper gold as a hedge against a stock market drop. Indeed, there may be better hedges in the form of options for stock market participants.

Gold’s sell-off further damages technical outlook for bulls

As we have been pointing out in recent days, the metal’s inability to hold above the 2017 high of $1357 has made us rather cautious even if other technical indicators point to an eventual breakout. As gold is still residing above the 200-day moving average, which is also pointing higher, this objectively tells us that the long-term trend is indeed bullish. However, it is just that we don’t like the price action around last year’s high from a bulls’ point of view. In fact, the bears would point to the failed breakout attempts as signs that the trend is turning lower, with Friday’s bearish engulfing candle providing some confirmation. If that wasn’t enough, today breakdown further bolsters the bears’ case.

At the time of this writing, gold was trading around $1315, so it was below both the 50-day average ($1323) and the 38.2% Fibonacci retracement level ($1316.5). If the selling pressure persists, then the metal’s next stop could be around $1300 given that there’s nothing significant in terms of support apart from that pivotal long-term psychotically hurdle. Below $1300, the next potential support is at $1286. This level marks the confluence of the 61.8% Fibonacci level with the 200-day moving average. On the upside, resistance comes in at $1321/2, followed by $1327 and then $1345. These levels were the old support levels, so they could turn into resistance. If these levels fail to hold gold down then it will be very likely that gold will go on to take out that $1357 at the fourth time of asking. But we will cross that bridge when and if – a big if – we come to it.

Risk Warning Notice Foreign Exchange and CFD trading are high risk and not suitable for everyone. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. Margin and leverage To open a leveraged CFD or forex trade you will need to deposit money with us as margin. Margin is typically a relatively small proportion of the overall contract value. For example a contract trading on leverage of 100:1 will require margin of just 1% of the contract value. This means that a small price movement in the underlying will result in large movement in the value of your trade – this can work in your favour, or result in substantial losses. Your may lose your initial deposit and be required to deposit additional margin in order to maintain your position. If you fail to meet any margin requirement your position will be liquidated and you will be responsible for any resulting losses.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex Analysis

Editors’ Picks

USD/JPY seesaws around 107.00 amid coronavirus-led risk-off

USD/JPY remains on the back foot amid the early Thursday morning in Asia. The Japanese yen benefits from its safe-haven allure while being the only major to gain versus the US dollar during the current tough time.


AUD/USD remains under pressure below 0.6100 as markets stay defensive

AUD/USD fails to cheer better than forecast activity numbers from home and China. Globally rising coronavirus cases, extended lockdowns in Europe and grim words from key policymakers favor risk-off. 


Gold building a bullish case as COVID-19 reigns

The gold price has lost some bullish support of late as the US dollar moves higher, ending the last quarter on the front foot as a relatively illiquid market sees exaggerated moves adding to the upside support. 

Gold News

WTI pierces $21.00 as US fuels hopes of supply disturbance/control

While extending its recovery moves from the previous day, WTI clears the $21.00 mark, with a high of $21.20, while taking rounds to $21.10 during Thursday’s Asian session. The US leader expects Russia-Saudi Arabia “to work it out.”

Oil News

Dollar Shrugs Off ISM & ADP in Fear of Ugly Jobless Claims

If the first day of April is a taste of what's to come, it will be a very rocky second quarter. After falling more than 24% between January and March, the Dow Jones Industrial Average plunged opened down more than -700 points. 

Read more

Forex Majors