Gold Price Forecast: Gold Loses Shine as USD and US Yields Edge Higher
Updated
The main focus today will be on Fed Chair Powell’s speech at the Economic Club of Washington (1740GMT). What will be important for markets is Chair Powell’s commentary surrounding financial conditions, rate cuts priced in for 2023 and any response regarding the strong NFP report.
Firstly, with regard to financial conditions, Chair Powell did address this at the press conference, which seemingly gave the green light for equities to rally further after noting that the FOMC’s focus is not on short-term moves but on sustained changes to broader financial conditions. However, at the time of writing, Fed’s Kashkari has stated that easing financial conditions is a cause of concern, adding that the Fed would have to do more on rates.
Elsewhere, money markets are now in line with the Fed’s dot plot projection with the peak interest rate seen at 5.00-5.25%, implying two more rate hikes, which in turn has allowed for the USD to find a bid. However, what does go against the FOMC’s higher-for-longer rhetoric is that markets are still pricing in 25-30bps of cuts by year-end. Therefore, traders will be closely watching for any pushback on this, which if indeed is the case, the USD is likely to take a further leg higher.
Regarding the tightness of the labour market, the most recent NFP report provided a clear reminder of this, albeit there might have been some one-off seasonal factors that prompted such a sizeable reading. But, nonetheless, this does not detract from the point that the labour market remains extremely strong.
Fed Official's Response so far to NFP
Bostic (non-voter): Base case remains two more rate hikes, but strong jobs raises the probability of a higher terminal rate.
Kashkari (Voter): Not lowering my rate path, still around 5.4%. Have to bring labour market into balance, haven’t done enough yet.
As Fed members highlight that more work needs to be done, the expectation is that Chair Powell will be hawkish today.
Gold Losing its Shine?
In response to the strong US data, the USD and yields has edged higher, which in turn has prompted Gold to correct lower. Thus far with the precious metal comfortably above its 55DMA (1841), the correction is modest at best. A break below 1830-40 could lead to a more violent shake-out towards 1800. That being said, given that there is potentially a window for USD strength to persist a little while longer, short-term risks remain titled to the downside for gold. This is also backed up technically after gold posted a bearish key week reversal.
Gold vs US 10Y Yield and US Dollar
Gold vs US Yields and USD - Photo: Capital.com. Source: TradingviewGold Chart: Weekly Time Frame
Gold Weekly Chart - Photo: Capital.com. Source: TradingviewRelated topics