2022-10-17 • Updated
On Thursday, September 15, XAUUSD lost its major support, which used to limit the downside since April 2020. The decline happened amid expectations of more aggressive Federal Reserve interest rate hikes due to higher-than-expected US inflation.
Investors treat gold as a hedge against inflation. A rise in inflation or inflationary expectations increases investors’ interest in purchasing gold and drives up its price. In contrast, disinflation or a drop in inflationary expectations does the opposite.
Gold and inflation expectation. Source: Chicagofed
However, we can notice that since the 2000s, the gold price has been rising while the inflation expectations were steadily low. It was caused by the Fed monetary policy, according to which the Federal Reserve has been printing USDs to support the economy. As a result, the amount of USD in circulation increased parabolically, pushing gold prices to new highs.
USD in circulation. Source: FRED
Moreover, gold is sensitive to expected long-term real interest rates. Since metal is a long-duration durable asset, its price has a strong inverse relationship with the long-term real interest rate. A rise in expected real rates should drive down the price of gold.
Therefore, central banks' rate hikes and the Fed's quantitative tightening (QT) monetary policy make gold one of the most unpopular assets among big investors. Holding the metal doesn't provide any dividends or payouts, while big hedge funds have to show a profit to investors. Therefore, smart money prefers short-term government bonds to gold, as yields skyrocketed to 15-year highs.
US 3-month Government Bond Yield. Source: Tradingview
While the consensus is a 75-basis-point hike on September 21, some Fed members call for a 100-basis-point increase. The gold market reflects such a prospect. As a result, an actual rate hike by 75 bps may be a positive surprise for the yellow metal.
After the breakout, primary support levels for XAUUSD are 1530.00, the horizontal level from May 2012, and 1435.00, 161.80 Fibonacci level. The range between 1680 and 1705 acts as the massive resistance for the price since the breakout.
In the short term, the price might increase inside the resistance range to confirm the breakout. However, I expect a massive decline towards the support levels in the middle term.
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Bearish scenario: Sell below 2200 / 2194 ... Nearest bullish scenario: Buy above 2197... Bullish scenario after retracement: Consider buys around each indicated demand zone
Bullish scenario: Intraday buys above 2160.00 with TP: 2171 and TP2: 2177 // Bearish scenario: Sells below 2177 with TP1: 2150, TP2: 2142, and 2126
This article uses price action and volume profile techniques to address a fundamental and technical perspective based on the daily chart analysis of spot gold (XAUUSD).
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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