Gold slumped to its lowest level since April 2020, with uninterrupted dollar purchases continuing unabated. Expectations for more aggressive rate hikes by the Fed and rising US bond yields are supporting the dollar. Market analyst Haresh Menghani says calm concerns weigh on investor sentiment and limit losses for safe-haven gold. We have prepared Haresh Menghani’s market comments and technical analysis for our readers.
“The Falcon Fed is driving investors away from gold”
Koindeks.com As you can follow, gold started the new week on a weaker note. It fell to its lowest level since April 2020 during the Asian session. Buying US dollars and selling everything else remains the main theme in the markets. This is an important factor that determines the load of the commodity in dollar terms.
Last week, the Fed made another major rate hike, as was widely expected. In addition, he signaled valuable increases in his upcoming meetings. A more hawkish stance adopted by the US central bank continues to support rising US Treasury bond yields. Interest-sensitive 2-year US government bond yields hit a 15-year high. The reference 10-year Treasury bill is close to an 11-year high. That continues to support the dollar and further drive away from the unproductive yellow metal.
However, intraday bearish holds near the $1,626 region amid the prevailing risk-aversion environment that tends to benefit safe-haven gold. Market sentiment remains fragile amid growing calm concerns. Investors continue to be alarmed that faster policy tightening by major central banks will lead to a deeper global economic downturn. This helps to end losses for gold as well as risks further escalation of the Russia-Ukraine war.
“First of all, it is necessary to confirm that gold has formed a short-term base”
In the midst of this, Russian President Vladimir Putin announced the first popular mobilization to support the Ukrainian war, which has faltered in the latest geopolitical development since the Second World War. Apart from that, headwinds arising from China’s zero covid policy negatively affect risk sensitivity. The risk reversal is evident in an overall weaker tone in the equity markets.
In the middle, a random meaningful recovery is still tough. Some caution needs to be exercised before confirming that gold has formed a short-term base. In the absence of any precious economic announcements from the US that will stir the market, traders will take cues from influential FOMC members’ speeches on Monday. This, along with US bond yields, will affect USD price dynamics. Also, a measure of gold will give momentum. Also, it is possible that greater risk sensitivity will create short-term trading opportunities around gold.
Gold technical outlook: $1,600-$1,590 region is an obvious possibility
From a technical standpoint, Friday’s drop confirmed a breakout of the one-week consolidative trading range. It is possible that this has prepared room for additional losses. This suggests that any meaningful rebound is still seen as a selling opportunity. Therefore, a correct drop to the next relevant reinforcement, namely the $1,600-$1,590 region, is now clearly possible.
On the other hand, the process range reinforcement breakout near $1,656 is now acting as a close snag. Always strength is likely to trigger a short-term move. However, it risks gushing out pretty quickly near the $1,675-1,676 supply zone. However, some continued buying will remove the short-term negative bias. It will also pave the way for additional benefits. As such, it will allow the bulls to aim to reclaim the $1,700 round number mark.