- Despite a firmer dollar, technically gold bulls are eyeing the prospects for a move back to previous lows in a 50% mean reversal.
- The spotlight remains on global central banks as the US dollar and Treasury yields continue to dictate the show
Gold prices came under some pressure at the start of the week, down around 0.20% after falling from a high of $1,679 to a low of $1,659 on the day and near a 29-month low marked on Friday. The dollar and Treasury yields continue to dictate the show as traders remain on the lookout for this week’s Federal Reserve and expect the US central bank to make a sharp interest rate hike when it meets. this week.
Sentiment surrounding rising inflation and tightening monetary policy continues to reduce the opportunity cost of holding zero-yielding precious metals. At the same time, the greenback remains near two-decade highs, making bullion more expensive than USD for foreign buyers. The DXY dollar index, which measures the currency against six peers, rose 0.4% to 109.98, not far off the 20-year high of 110.79 hit on September 7.
Risk-off sentiment is also helping the dollar rise as global banks continue to aggressively tighten as they try to contain uncomfortably high inflation. Several central banks are meeting this week, and Federal Reserve funds futures have priced in a 79% chance of a 75 basis point rate hike this week and a 21% chance of expect a 100 basis point hike at the end of the two-day Federal Reserve committee meeting.
Meanwhile, analysts at TD Securities said they “expect continued exits from money managers and ETF holdings to weigh on prices, ultimately raising the likelihood of a pending capitulation of the small number of family offices.” and proprietary trading shops that maintain a complacent length in gold.”
”The persistence of inflation continues to support an aggressive effort by the Fed, and we now expect the FMOC to raise the target interest rate by 75 basis points at its meeting next week, to make another 75 point hike basis points in November and rise another 50 basis points in December. In this context, although prices are certainly weak, the price of precious metals could continue to decline, as the restrictive rate regime is going to last longer.”
Gold Monthly Chart
Gold is on the verge of a key breakout according to the monthly chart above. However, if the bulls move before the month is out, we could be in for an equally significant recovery and correction that highlights the following previous lows as potential resistance:
On a daily basis, the M formation is playing out with the bulls moving and the prospect of a move to previous lows in a 50% mean reversal.
Source: Fx Street
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