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FUNDAMENTAL
OVERVIEW
The price action
in gold has been mildly negative since Friday after the strong US NFP revived Fed
rate hike bets and increased real yields. Higher real yields raise the
opportunity cost of holding gold because gold pays zero interest while safe
government bonds offer a positive, inflation-adjusted return.
The key themes to
watch are the US-Iran war and Fed tightening expectations. With tensions in the
Middle East escalating, oil prices have been rising steadily, increasing
inflation risks. The Fed, on the other hand, has been leaning against higher
inflation expectations by adopting a hawkish bias and signalling rate hikes in
case core inflation started to move in the wrong direction.
This is why the US
CPI report on Friday is going to be a key event. Unless,
we get some surprising breakthrough in US-Iran relations, the price action will
likely remain mostly rangebound or a bit negative for gold as traders at some
point might start hedging into the CPI release.
A soft or in-line CPI will likely give
gold a boost as Fed’s Waller mentioned that he won’t consider a rate hike unless we get a hot CPI. Conversely, an upside surprise in core monthly
inflation data will likely trigger another selloff in gold on stronger rate
hike bets.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see gold is approaching the 4,311 support. If the price gets there, we can
expect the buyers to step in with a defined risk below the support to position
for a rally into the 4,890 level. The sellers, on the other hand, will want to
see the price breaking lower to pile in for a drop into the 3,885 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we
have a downward trendline defining the recent bearish structure. If we get a
pullback into the trendline, we can expect the sellers to lean on it with a
defined risk above it to keep pushing into new lows. The buyers, on the other
hand, will look for a break higher to increase the bullish bets into the 4,890
level next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline defining the bearish momentum on this timeframe.
The sellers will likely continue to lean on the trendline with a defined risk
above it to keep pushing into new lows, while the buyers will look for a break
higher to pile in for a pullback into the 4-hour trendline. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we get the
US PPI report and the US Jobless Claims figures. On Friday, we conclude the
week with the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.
