- Gold is consolidating in the $1,860 area amid mixed sentiment and hesitation to trade after Monday’s risk-off session.
- The focus is on an upcoming flurry of speech from the Fed ahead of Wednesday’s release of key US CPI for April.
Overall market risk appetite remains mixed and indecisive in the hours leading up to the start of the US session, after an outright risk aversion on Monday. For now, US stock index futures are trading higher amid a rally in their European peers, while bond yields on both sides of the Atlantic continue to pull back from multi-month/year highs hit. Monday. Energy and industrial metals prices are slightly lower, while conditions in the currency markets are quite mixed and subdued, with DXY sideways but remaining well supported near recent highs above 103.50.
In this context, it is perhaps not too surprising to see gold prices (XAU/USD) consolidate not much above last week’s multi-week lows at $1,850. XAU/USD is currently trading just above the $1,860 level with gains of around half a percentage point on the day. Traders’ attention is now focused on a barrage of upcoming comments from Fed policymakers during the rest of the session on Tuesday. New York Fed President John Williams will speak at 12:40 BST, Raphael Bostic at 13:30 BST, Christopher Waller and Neel Kashkari at 18:00 BST and Loretta Mester at 20:00 BST.
So far, Fed policymakers appear to be in broad agreement with the policy signal sent out by Fed Chairman Jerome Powell in the wake of last week’s policy meeting and comments from Tuesday members stick to the script. Essentially, the Fed wants to get interest rates back to neutral (around 2.5%) by the end of the year and then assess how far it needs to continue to raise interest rates, which will depend on how bad the debt problem is. inflation.
A major reason for the recent pullback in risk assets (such as stocks, cryptocurrencies, and some economically sensitive commodities like copper), as well as precious metals, has been fears that they will push interest rates into totally “unbelievable” territory. restrictive” (ie, well above the neutral level of 2.5%). The demand for gold tends to wane as the “opportunity cost” of holding non-yielding assets rises (ie interest rates rise). Longer-dated US bond yields are an indicator of this “opportunity cost,” hence gold’s negative correlation with them.
Beyond the upcoming spate of speeches from the Fed, traders’ focus is already turning to Wednesday’s release of the US consumer price inflation report for April. Overall price pressures are expected to ease and if this is the case it could be a relief to markets. That could give gold a short-term boost. But it is still premature to bet against the Fed taking rates into tightening territory in 2023, and therefore premature to bet on a sustained rally back to previous yearly highs of $2,050.
Technical levels
Source: Fx Street
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