Gold prices struggled to find direction in the first half of the week, but came under strong bearish pressure late Wednesday amid the initial market reaction to the US Federal Reserve’s policy announcements. However, the sharp drop in the benchmark 10-year US Treasury yield allowed gold to make a definitive recovery towards $1,800 on Thursday, according to market analyst Eren Sengezer. The analyst states that although the dollar closed the week with a decisive rise against other major currencies, gold had no trouble holding on to its gains in the second half of the week. cryptocoin.com We have compiled Eren Sengezer’s analyzes for you in line with the developments in the markets.
What happened in the markets last week?
Data from the US revealed on Monday that the ISM Manufacturing PMI fell to 60.8 in October from 61.1 in September. The Prices Paid component of the ISM survey jumped from 81.2 to 85.7, confirming that input price pressures remain high. However, gold remained in the consolidation phase as investors stepped aside ahead of the Fed’s policy decisions, according to the analyst.
As expected, the Fed left the benchmark interest rate unchanged at 0-0.25%, which is the target range for federal funds, and announced that it will begin reducing asset purchases by $15 billion per month from mid-November. At the press conference, FOMC Chairman Jerome Powell reiterated that they will not automatically raise the policy rate after the quantitative easing program ends. The President also stressed that they see continued high inflation and said they would be ready to address this risk. While answering questions from the press, Jerome Powell explained that the rise in employment target was not clearly met and noted that they wanted to see more improvement in the labor market before considering a rate hike.
Gold has turned south as the 10-year U.S. T-bill yield soared, though the sudden market reaction left the dollar modestly weakened against its main rivals. On Thursday, the dollar regained its strength and posted impressive gains against European currencies, but gold managed to gain traction amid falling T-bond rates. According to the analyst, the positive correlation between the dollar’s market valuation and interest rates seems to have weakened, as it currently is. More importantly, the analyst states that interest rates have a more significant impact on gold than the relative performance of the dollar against other major currencies.
Meanwhile, the Bank of England’s decision to leave the policy rate unchanged at 0.1% was another factor weighing on global interest rates on Thursday. On Friday, the U.S. Bureau of Labor Statistics reported that Nonfarm Employment rose 531,000 in October, beating analysts’ estimate of 425,000. The dollar remained bullish after these data, but gold remained resilient as 10-year yields fell below 1.5% on Friday.
What’s on the agenda for next week?
No top macroeconomic data will be released at the beginning of the week and investors will be keeping a close eye on US T-bond rates. Analyst Eren Sengezer states that the 10-year interest rate is currently below 1.5% and emphasizes that if it fails to rise above this level, gold may continue to rise. On the other hand, the analyst states that if the 10-year interest rate regains 1.6% and remains stable above this level, gold may lose interest.
On Wednesday, the U.S. Bureau of Labor Statistics will release October Consumer Price Index (CPI) data. Core CPI, which excludes volatile food and energy prices, is expected to remain stable at 4% YoY. The analyst assesses that the market’s response to CPI data may be limited as the Fed uses the Personal Consumption Expenditure (PCE) Price Index as its preferred indicator of inflation.
On Thursday, the UK’s Office of National Statistics will release third-quarter Gross Domestic Product (GDP) data. Following the BoE’s latest policy decisions, the CME Group BoEWatch Tool shows there is a 15 basis point chance of a 67.5% rate hike in December. According to the analyst, if the GDP report shows a significant slowdown in the UK’s economic activity, the odds of a rise in December could decrease and put pressure on global yields. Also, the University of Michigan’s preliminary November Consumer Sentiment Index will be on the US economy on Friday.
Gold prices technical outlook and gold sentiment survey
Market analyst Eren Sengezer said that gold closed Friday above the 200-day and 100-day SMAs for the second day in a row, adding that the Relative Strength Index (RSI) indicator on the daily chart topped 50 in the short-term outlook. states that he confirms it. Eren Sengezer draws attention to the following levels in his technical analysis:
On the upside, gold could target $1,810 (static level) ahead of $1,820 (38.2% retracement of the Fibonacci April-June uptrend). A daily close above the second level could open the door for additional gains towards $1,835 (static level). Initial support is at $1,790 (200-day SMA) ahead of $1,785 (100-day SMA) and $1,770 (Fibonacci 61.8% retracement).
The FXStreet Forecast Survey shows that half of experts see gold rise next week, but the average target is $1,798. According to experts, the monthly perspective paints a mixed outlook.
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