- Gold remains under intense selling pressure for the fourth day in a row on Friday.
- The Fed’s aggressive rate hike bets boost the dollar and drive away flows of the metal.
- Risk aversion momentum offers some support to XAU/USD amid oversold conditions.
The Prayed continues to lose ground for the fourth day in a row on Friday and falls to its lowest level since April 2020. Selling pressure appears to have eased, at least for the time being, allowing the XAU/USD hold above the $1,650 level.
The US dollar has secured fresh offers on the last day of the week amid expectations of a sharp rate hike by the Fed and is proving to be a key factor putting downward pressure on dollar-denominated gold. In fact, markets began to price in the possibility of a 100 basis point rate hike at the next FOMC meeting on September 20-21, following the release of stronger US CPI earlier this week.
In addition, market players also expect the US central bank to carry out another rate hike of 75 basis points in November. This continues to support elevated US Treasury yields, which provide additional support to the USD and help deter flows of the underperforming yellow metal. That said, the risk aversion momentum helps limit losses for gold, which is a safe haven, at least for now.
Market sentiment remains fragile amid concerns that rapidly rising borrowing costs will trigger a deeper global economic downturn. This, coupled with economic headwinds stemming from further COVID-19 lockdowns in China and the protracted war between Russia and Ukraine, has been fueling recession fears. This, in turn, causes investors to lose appetite for riskier assets and sell-offs in equity markets.
Furthermore, the oversold conditions on the 4-hour chart prevent bearish traders from placing further bets on gold. Investors may also prefer to stay on the sidelines ahead of risks from next week’s key central bank events. The Fed is scheduled to announce its decision on Wednesday, which will be followed by meetings of the Bank of Japan, the Swiss National Bank and the Bank of England on Thursday.
However, the fundamental backdrop continues to lean heavily in favor of bearish traders and suggests that the path of least resistance for gold is to the downside. Therefore, any significant rally attempt could be seen as a selling opportunity and risks fading quickly.
Technical levels
Source: Fx Street
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