|

Gold Price Analysis: XAU/USD bounces off weekly lows, lacks follow-through buying

  • Gold consolidates the heaviest losses in six weeks, fades consolidative bounce of late.
  • Market’s struggle for clear direction after US CPI challenged Fed, US stimulus.
  • Wall Street benchmarks dropped over 2.0%, down for third day, but S&P 500 Futures prints 0.10% gains afterward.
  • Geopolitical woes, US data can entertain gold traders amid a light calendar.

Update: Gold reversed an intraday dip to sub-$1,810 levels, or one-week lows and climbed to the top end of its daily trading range during the early North American session. The commodity was last seen trading around the $1,820 region, up 0.20% for the day.

The US dollar struggled to preserve its intraday gains to weekly tops, instead witnessed some selling at higher levels amid a softer tone surrounding the US Treasury bond yields. This, in turn, was seen as a key factor that extended some support to the non-yielding yellow metal. However, a positive turnaround in the US equity futures acted as a headwind for traditional safe-haven assets and kept a lid on any further gains for gold.

On the US economic data front, the Initial Weekly Jobless Claims fell more than anticipated to 473K during the week ended May 7 as against the previous week's upwardly revised reading of 507K. Separately, the US Producer Price Index rose 0.6% in April and the yearly rate surged to 6.2%, beating market expectations. The mostly upbeat data, however, did little to impress the USD bulls or provide any meaningful impetus to dollar-denominated commodities, including gold.

Update: Gold traded with a positive bias through the early European session and was last seen hovering near the top end of its intraday trading range, just below the $1,820 level.

A combination of factors assisted the precious metal to regain positive traction and recover a part of the previous day's US CPI-inspired losses to weekly lows. A modest pullback in the US Treasury bond yields held the US dollar bulls from placing aggressive bets, which, in turn, extended some support to the dollar-denominated commodity. Apart from this, the prevalent risk-off mood – as depicted by an extended selloff in the global equity markets – further benefitted the traditional safe-haven gold.

Meanwhile, a surge in the US consumer prices fueled speculations about an earlier than anticipated tightening by the Federal Reserve. This was seen as a key factor that kept a lid on any meaningful upside for the non-yielding yellow metal. Hence, it will be prudent to wait for some strong follow-through buying around gold before traders positioning for the resumption of the recent appreciating move witnessed over the past one-and-half-month or so.

Update: Gold retreats above $1,800, offered around $1,817 ahead of Thursday’s European session, as market sentiment dwindles following the US Consumer Price Index (CPI)-led debacle.

Gold prices dropped the most in 2.5 months the previous day amid reflation fears while the latest weakness could be traced to the US 10-year Treasury yields, down 1.8 basis points (bps) to 1.68% by the press time. The risk barometer, Treasury yields jumped the most in two months on Wednesday before traders reassessed fears emanating from the coronavirus (COVID-19) variants and geopolitics. The same put a bid under the US dollar and weighs on gold.

Given the fewer catalysts ahead of the North American session, the pick-up in the US dollar index (DXY) could last longer and may extend if Jobless Claims, as well as Producer Price Index (PPI), stay firm. As a result, gold prices may downbeat below $1,840 hudle.

Gold drops back to $1,814.75, following the biggest daily losses since March-end, during Thursday’s Asian session. In doing so, the gold traders fail to keep the late Wednesday’s corrective pullback from $1,813.36 as markets haven’t forgone the reflation fears propelled by the previous day’s US Consumer Price Index (CPI) data.

US CPI is a challenge to both, Fed and Biden…

With the highest annual US inflation since 2008, double the Federal Reserve’s (Fed) 2.0% target, global markets reaffirm the fears that the easy money has a limited future going forward. The same triggered a risk-off mood and backed the US dollar index (DXY) run-up, not to forget dragging down the Gold prices on Wednesday.

Following the data, Fed's Vice Chair Richard Clarida and Atlanta Federal Reserve President Raphael Bostic tried to placate bears but failed. Also, CNN broke the news of a leading Democratic economist Larry Summers warning the White House on the ‘overheating’ issue, which in turn tests the latest mildly bid market mood and recalls the gold sellers.

Not only the reflation fears but the ongoing tussles between Israel and Palestine also weigh on the trading sentiment and gold. In this regard, Reuters came out with a piece of news citing the US sending an envoy to placate conditions in the Middle East after Israel killed Hamas commander.

Against this backdrop, Wall Street benchmarks dropped around 2.0 each, marking the third day of losses on Wednesday. Further, the US 10-year Treasury yields jumped the most in two months. However, S&P 500 Futures print mild gains amid a light calendar in Asia.

Looking forward, gold traders should wait for more clues that challenge the easy money policies. In doing so, today’s US Jobless Claims and Producer Price Index, followed by Friday’s US Retail Sales, will be the key as any further heating of data will disappoint the Fed more, backing the gold sellers.

Technical analysis

Having justified the early-week pullback from 200-day SMA on Wednesday, gold’s latest corrective pullback battles 50% Fibonacci retracement of January-March downside, around $1,820. Given the downward sloping Momentum line, coupled with the bearish fundamental, gold sellers are likely to keep the reins.

Though, lows marked during late April and early May offer immediate support to gold prices surrounding the $1,800 threshold, below the $1,813 trigger for the fresh downside.

It should, however, be noted that the uptrend can’t be ruled out unless the gold buyers defend an ascending support line from March 31, near $1,793.

Meanwhile, a clear break above the 200-day SMA level near $1,848 needs validation from 61.8% Fibonacci retracement figures close to $1,851-52 before challenging gold’s late January tops near $1,875.

Gold daily chart

Trend: Further weakness expected

Additional important levels

Overview
Today last price1813.96
Today Daily Change-1.56
Today Daily Change %-0.09%
Today daily open1815.52
 
Trends
Daily SMA201790.91
Daily SMA501752.13
Daily SMA1001795.85
Daily SMA2001849.3
 
Levels
Previous Daily High1843.7
Previous Daily Low1813.36
Previous Weekly High1843.4
Previous Weekly Low1766.17
Previous Monthly High1797.93
Previous Monthly Low1705.84
Daily Fibonacci 38.2%1824.95
Daily Fibonacci 61.8%1832.11
Daily Pivot Point S11804.69
Daily Pivot Point S21793.85
Daily Pivot Point S31774.35
Daily Pivot Point R11835.03
Daily Pivot Point R21854.53
Daily Pivot Point R31865.37

Author

Anil Panchal

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

More from Anil Panchal
Share:

Editor's Picks

AUD/USD battles 0.7000 amid bullish USD

AUD/USD keeps its offered tone intact near 0.7000 at the start of a new week, trading near its lowest level since August 4 amid a bullish US Dollar. US yields hold near multi-year highs amid inflation risks from higher oil prices and rising bets on an October Fed rate hike. This, along with the US-Iran standoff, continues to underpin the safe-haven buck and weigh on the pair ahead of Tuesday's RBA policy announcements.

USD/JPY climbs back toward 158.00 after BoJ minutes amid firm USD

USD/JPY finds dip-buyers and reverses part of Friday's slide driven by speculation that authorities will step in again to prop up the Japanese Yen. However, the BoJ's dovish Minutes cap the JPY. Meanwhile, the US Dollar regains traction as the US-Iran standoff supports crude oil prices, fueling inflation fears and reaffirming bets for an October Fed rate hike. This further supports the pair, driving it back toward 158.00.

Gold slides to $4,200 on Fed hike bets and Iran risks

Gold falls hard at the start of a new week, sliding back closer to $4,200 and the lower boundary of the monthly range. Firming October Fed rate-hike bets, along with oil-driven inflation risks, keep US bond yields elevated near multi-year highs, helping the US Dollar regain positive traction amid persistent Iran risks. These factors weigh heavily on the bullion.

Week ahead: Rate hike bets face a crucial data week
Despite the solid drop from the mid-September high, oil prices remained in the driver’s seat for another week, setting the tone in financial markets. Six months have passed since the late-February start of the US-Iran conflict, and there is still no breakthrough in the stalled talks, despite pressure from regional leaders and the rest of the world.
After the Trump Xi summit, markets are trading three clocks
The summit delivered time, not a deal. Trade, oil and chips now each run to a date, and the macro backdrop matters more than the pageantry. Markets wanted a deal and got a calendar date instead. Xi Jinping left Washington on Friday after tea at the White House and a tour of the National Archives.
Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.