- Gold meets with a fresh supply on Friday and is pressured by sustained USD buying.
- Aggressive Fed rate hike bets, elevated US bond yields continue to underpin the buck.
- Recession fears weigh on investors’ sentiment and could offer support to the XAU/USD.
Gold attracts fresh selling near the $1,675-$1.676 area on Friday and drops to a fresh daily low during the first half of the European session. The XAU/USD is currently placed just below the $1,665 level and remains confined in a familiar trading range held since the beginning of this week.
The US dollar hits a new 20-year peak on the last day of the week and is seen as a key factor exerting downward pressure on the dollar-denominated gold. Adding to this, the prospects for more aggressive policy tightening by the Fed further contribute to driving flows away from the non-yielding yellow metal.
In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the Fed's so-called dot plot, revealing that policymakers expect the benchmark lending rate to top 4% by the end of 2022. From there, central bank officials anticipate further hikes in 2023.
The Fed's hawkish outlook remains supportive of elevated US Treasury bond yields. The yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. This, in turn, should continue to act as a tailwind for the buck.
Meanwhile, faster interest rate hikes by major central banks have stoked concerns of a deeper global economic downturn. This, along with headwinds stemming from China's zero-covid policy and the risk of a further escalation of the war in Ukraine, have been fueling recession fears and weighing on investors' sentiment.
This is evident from the ongoing fall in the equity markets, which could extend support to the safe-haven gold and help limit deeper losses. Even from a technical perspective, the recent range-bound price action points to indecision among traders, warranting some caution before placing aggressive directional bets.
Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. The focus, however, will remain on Fed Chair Jerome Powell's speech at an event in Washington, which will influence the USD and produce some meaningful trading opportunities around gold.
Technical levels to watch
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