- Gold recovers slightly from the three-week low reached this Thursday.
- The appearance of some selling around the dollar offers support, although the rally lacks continuation.
- Expectations of an aggressive Fed rate hike and high US bond yields are acting as a headwind for XAU/USD.
The Prayed it rebounds from a fresh three-week low hit on Thursday and maintains its modest gains during the first half of the European session. XAU/USD is currently near the daily high, just below the $1,635 zonealthough it still seems unlikely that there will be a significant rise.
US dollar moves lower and trims some of the previous day’s strong gains, which turns out to be a key factor that offers some support to the price of gold, denominated in dollars. In addition, growing concerns about a deeper global economic downturn and market caution are factors favoring the safe-haven precious metal.
Having said that, prospects for more aggressive monetary policy tightening by major central banks limits any significant rise in non-yielding gold. Markets have been pricing in big rate hikes from the European Central Bank and the Bank of England. The Federal Reserve is also expected to continue its aggressive rate hike cycle.
In fact, the CME’s FedWatch tool indicates a near 100% chance of a fourth consecutive rate hike of 75 basis points at the next FOMC policy meeting in November. These expectations were reinforced by recent hawkish comments from several Fed officials, who reiterated that the US central bank is committed to its aggressive fight against rising prices.
This, in turn, pushes the rate-sensitive 2-year US government bond yield to a new 15-year high and the benchmark 10-year Treasury note to its highest level since the 2008 financial crisis. High US bond yields should limit any significant decline in the dollar. This, in turn, suggests that the path of least resistance for gold is down.
Market participants now look to the US economic docket, with the Philadelphia Fed manufacturing index, weekly jobless claims and existing home sales data. This, along with speeches from influential FOMC members and US bond yields, will drive demand for the dollar. Apart from this, the broader risk sentiment should give gold some lift.
gold technical levels
Source: Fx Street
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