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 recession fears weigh on investor sentiment and limit losses for safe-haven gold. We have prepared Haresh Menghani’s market commentary and technical analysis for our readers.
“The Falcon Fed is driving investors away from gold”
cryptocoin.comAs 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 weight of the commodity in dollar terms.
Last week, the Fed made another large rate hike, as was widely expected. It also signaled significant increases in its 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 reached their highest level in 15 years. 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 rising recession fears. Investors remain concerned that faster policy tightening by major central banks will lead to a deeper global economic downturn. This helps limit losses for gold as well as the risk of further escalation of the Russia-Ukraine war.
“First of all, it is necessary to confirm that gold has formed a short-term bottom”
Meanwhile, Russian President Vladimir Putin announced the first popular mobilization since the Second World War to support the Ukrainian war, which has faltered in the latest geopolitical development. Apart from that, headwinds arising from China’s zero covid policy negatively affect risk sensitivity. The anti-risk flow is evident in an overall weaker tone in the equity markets.
Meanwhile, any meaningful recovery is still elusive. Some caution needs to be exercised before confirming that gold has formed a short-term bottom. In the absence of any major economic announcements from the US, traders will take cues from influential FOMC members’ speeches on Monday. This, along with US bond yields, will affect USD price dynamics. It will also add some momentum to the gold. Also, it is possible that the broader risk sensitivity will create short-term trading opportunities around gold.
Gold technical outlook: $1,600-$1,590 region is a clear possibility
From a technical standpoint, Friday’s drop confirmed a breakout of the one-week consolidative trading range. It is possible that this set the stage for additional losses. This suggests that any meaningful recovery is still seen as a selling opportunity. Hence, a decline towards the next relevant support, the $1,600-$1,590 zone, is now a distinct possibility.
On the other hand, the trading range support breakout near $1,656 is now acting as a near hurdle. Persistent power 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 earnings. Thus, it will allow the bulls to aim to reclaim the $1,700 round figure mark.
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