Investors are watching the Fed and other central banks prepare for aggressive rate hikes this week to rein in high inflation. In this environment, gold prices fell on Monday amid the pressure of the stronger dollar. Analysts interpret the market and look at the technical outlook for gold.
“A hawkish rate hike would be another nail in the gold coffin”
Spot gold was down 0.64% at $1,664 at the time of writing. U.S. gold futures slid 0.73% to $1,671.2. The bullion market in London, the world’s largest physical gold trading center, is closed for Queen Elizabeth’s funeral. Therefore, traders and investors expect trading to be light.
Meanwhile, the dollar index (DXY) rose 0.3%. Thus, the strengthening dollar made bullion more expensive for buyers of other currencies. City Index analyst Matt Simpson cites the Fed’s upcoming policy meeting. In this context, the analyst makes the following assessment:
We will see some volatile, sideways trading on the way to the FOMC meeting. $1,680 will likely be a very important level for traders in the near term. A hawkish rate hike would likely be another nail in the gold’s coffin. This will likely bring prices down to the $1,600-1,650 range.
“Rising geopolitical and economic risks do not attract safe harbor purchases”
cryptocoin.comAs you follow, the FOMC will start its two-day meeting on interest rates on September 20. He will announce his decision the next day. Meanwhile, markets have fully priced in a 75 basis point rate hike by the Fed. Most banks meeting this week are expected to increase. Markets are divided over whether the Bank of England will raise it by 50 or 75 basis points.
US consumers’ short-term inflation expectations fell to a one-year low in September. This allayed fears that the Fed would raise rates by a full percentage point. In a note, ANZ analysts highlight:
Rising geopolitical and economic risks are doing little to lure safe-haven buying. However, the US dollar is still a preferred asset.
Technical analysis: Gold extends losses
Market analyst Sagar Dua makes the following analysis of the technical outlook for gold. Gold price failed to surpass the critical resistance of $1,680 in the Asian session. After that, it witnessed a vertical decline. The precious metal is facing further losses as the intraday inventory breakdown shows the resumption of a downward journey. The yellow metal is likely to find a buffer around its two-year low at $1,654.20.
The US dollar index (DXY) is preparing for a new rally. In this environment, gold prices are facing severe pressure from market participants. According to the consensus, the Fed will announce the third consecutive rate hike of 75 bps. However, price pressures are not responding effectively to the current pace of interest rates. Therefore, investors need to be prepared for an upside surprise.
On an hourly scale, gold prices are dipping towards potential support at $1,654.20, the two-year low recorded last week. The drop in the 20- and 50-period Exponential Moving Averages (EMA) to $1,670.50 and $1,674.74 adds to the downward filters. Also, the Relative Strength Index (RSI) (14) is on the verge of slipping into the 20.00-40.00 bearish range. This will trigger the bearish momentum.
Pablo Piovano: The rebound for gold is unconvincing
Open interest on gold futures markets reversed two consecutive days of gains on Friday, according to advanced reports from CME Group. Accordingly, approximately 5.1 thousand contracts shrank. Volume followed, with nearly 55.8k contracts falling.
According to the analyst, Friday’s attempt to rise in gold prices paved the way for the resumption of the downtrend in the very near-term, following the declining open interest and volume. However, he notes that the next target is near the $1,650 mark. This target appears in the last lows of 2022.
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