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XAU/USD bears are lurking below $1,785

  • Gold under pressure on daily chart, flat in Asia ahead of FOMC minutes.
  • The price is expected to move below the daily support until resistance nears the 50% moving average retracement of $1,785.

Gold was flat on the day trading around $1,776.50 and sticking to a tight range between $1,773.91 to $1,776.85. The yellow metal fell as rising Treasury yields weighed on investor appetite. A slightly stronger US dollar also dampened investor demand. The greenback is currently steady as investors await the release of minutes from the Federal Open Market Committee’s July 26-27 meeting.

The US central bank raised its benchmark overnight interest rate by 225 basis points to tame higher inflation. The minutes may also hint at further interest rate hikes. The Fed is expected to raise its policy rate by another 50 or 75 basis points at its next meeting on September 20-21. US Treasury yields have remained firm as a result and despite recession worries and early signs of a slowdown in inflation.

Several Fed policymakers have spoken about the need for continued rate hikes despite last week’s lower-than-expected consumer price index result. “Fed officials have no choice but to sound hawkish in the face of a very tight labor market and very high inflation,” argued Kit Jucks, head of FX strategy at Societe Generale. “It’s hard to build a strong case for selling the dollar in that world.”

Meanwhile, ”the odds of a small squeeze for gold are diminishing significantly,” argued analysts at TD Securities. ”However, according to our CTA position estimates, the trend follower buying program contributed to lower rates last month, as algos were forced to cover shorts. If this supports higher prices in gold, the bar is thin for algorithmic trend followers to once again add selling pressure on US10y Treasuries,” the analyst said.

“This further reduces appetite for buying the yellow metal, but raises the bar further for additional short cover.” Meanwhile, Shanghai traders are also likely to appear on offer, especially amid a weakening CNY. Gold prices are weak, we see signs that gold sellers are going dormant. Finally, prop traders still have massive amounts of complacent longs, suggesting that we have yet to see a capitulation in gold, which argues that a painful trade remains for downside.

Technical analysis of gold

Gold is carving out a bearish case below the counter trendline on the daily chart as follows:

The price has stalled at an earlier support level but is expected to move below it until resistance nears the 50% moving average retracement of $1,785.

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