GOLD ANALYSIS & TALKING POINTS
- US fundamental variables continue to oppose one another with the Fed diverging from market data and market expectations.
- US jobless claims and Fed speak in focus later today.
- Bearish divergence an ominous sign short-term?
XAU/USD FUNDAMENTAL BACKDROP
Gold markets seem hesitant after Monday’s rally above the $2000 level and with a large disconnect between Federal Reserve speakers and money markets, further guidance is needed; possibly in the form of economic data. Speaking of implied Fed interest rate probabilities, the table below shows market expectations of close to 100bps of rate cuts by year end while some Fed officials are calling for further rate hikes above the 5% rate after which these levels should be maintained to keep downward pressure on inflation.
FEDERAL RESERVE INTEREST RATE PROBABILITIES
Furthermore, recent misses on US economic data including labor (JOLTs and ADP report) and the US ISM non-manufacturing PMI release have supported market expectations over Fed guidance but the focal point for the week will be the Non-Farm Payroll (NFP) statistic that could pushback against the current data. If the NFP print beats estimates this will result in the 12th consecutive print above forecasts and may give the USD additional support leaving spot gold vulnerable. Later today, jobless claims data will be the first port of call from a US perspective and markets will look to see whether or not this metric provisions the “US economic slowdown” rhetoric or not. The Fed’s Bullard will then close off the trading day where interest will be around consistency of Fed speak (maintaining the hawkish narrative).
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Source: DailyFX economic calendar
Real yields continue to fall but an NFP beat could increase interest rate projections and increase the opportunity cost of holding the yellow metal, exposing XAU/USD to the downside.
U.S. 10-YEAR TIPS – REAL INTEREST RATE
XAU/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Price action on the daily spot gold chart above exhibits some bearish divergence whereby the Relative Strength Index (RSI) reading and XAU/USD price action opposes one another. While there is still room short-term for gold appreciation, generally this signal points to impending downside. The resistance zone (green) marks the region between the August 2020 and March 2022 swing highs that will be the next market for gold bulls.
IG CLIENT SENTIMENT: CAUTIOUS
IGCS shows retail traders are currently distinctly LONG on gold, with 52% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short positioning, we arrive at a short-term mixed bias.
Contact and followWarrenon Twitter:@WVenketas