- Gold continues to lose ground for the sixth day in a row and falls to a four-week low.
- The aggressive expectations of the Fed, the increase in the yields of US bonds and the sustained purchase of dollars exert strong pressure.
- Recession fears and risk aversion momentum could limit the fall of safe haven XAU/USD.
The Prayed extends its recent downward trajectory for the sixth day in a row and falls to a four-week low on Monday. However, the decline stops near the $1,728 area amid a prevailing risk aversion environment, which tends to benefit the safe haven precious metal.
Market sentiment remains fragile amid growing concerns about a global economic downturn. This, coupled with headwinds stemming from the COVID lockdowns in China, triggers a new wave of risk aversion globally and forces investors to retreat into traditional haven assets. The flow of risk aversion allows gold to trim part of its heavy intraday losses, although a significant recovery still seems difficult.
The incessant buying of US dollars continues on the first day of a new week amid expectations that the Fed will continue to tighten monetary policy to rein in rising inflation. Indeed, the dollar index, which tracks the USD against a basket of six other currencies, rises to its highest level since mid-July and should act as a headwind for dollar-denominated gold.
Prospects for further interest rate hikes continue to support elevated US Treasury yields. This is another of the factors that should stop any attempt to recover the yellow metal, which does not offer yields. The fundamental backdrop suggests that the path of least resistance for gold is to the downside, although bearish traders might prefer to wait for the risk of this week’s key event.
Market participants will closely scrutinize Fed Chairman Jerome Powell’s Jackson Hole Symposium speech on Friday for clues about the possibility of a 75 basis point rate hike at the September meeting. Additionally, this week’s major US macroeconomic releases will play a critical role in influencing dollar price dynamics and help determine the next leg of a directional move for gold.
Technical levels
Source: Fx Street
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