- A combination of factors drags gold to a fresh three-week low on Wednesday.
- Fed expectations, rising US bond yields and a strengthening dollar are putting pressure.
- Risk aversion momentum could lend some support and help limit further losses.
Gold continues to lose ground during the first hour of the North American session and reaches a new low in three weeks, around the area of ​​$1,630 in the last hour. The drop is driven solely by a strong rebound in demand for the US dollar, which tends to weigh on dollar-denominated commodities.
In fact, the dollar index, which measures the evolution of the greenback against a basket of currencies, has already recovered a significant part of its weekly losses amid growing bets on an aggressive rate hike by the Fed. The US central bank remains committed to reining in inflation and is expected to raise rates again by 75 basis points at the next monetary policy meeting in November.
The Fed’s expectations cause a further rise in US Treasury bond yields and continue to act as a tailwind for the dollar. Indeed, the interest rate sensitive 2-year US government bond yield hits a new 15-year high and the benchmark 10-year Treasury yield hits its lowest level yet. high since 2008. This is seen as another factor driving away flows from gold, which is not performing.
The dollar maintains its strong supply tone and appears to be unaffected by the mixed US housing market data. This coupled with increased bets on a rate hike from the European Central Bank and Bank of England suggests the path of least resistance for XAU/USD is to the downside. Therefore, a pullback to the low of the year around the $1,615 area remains a distinct possibility.
That said, a change in global risk sentiment, as reflected in a generally weaker tone in equity markets, could support safe-haven gold. That said, any rally attempt could be seen as a selling opportunity and risks fading quickly.
Technical levels to watch
Source: Fx Street
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