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  • Gold holds firmly in the 1700s although offered in the session.
  • The Fed is on the radar, supporting gold prices this week in the lead-in.

Gold prices have been elevated, taking back territory in the 1700s while risk appetite has cooled in the US and Europe. Analysts say the market has been due for a rest as investors take stock of a rally that saw the S&P 500 erase its year-to-date losses at the start of this week. 

Bonds were mixed but haven currencies CHF and JPY rose sharply, which shows there is hesitance on what to expect from here. Gold, leading into the Federal Reserve today, will be accumulating expectations of a weaker dollar and a dovish outlook from the central bank.

The US dollar has been very mixed against G10 currencies, so far, down sharply against havens but posting sizeable gains against commodity FX.

Meanwhile, the growing optimism around the reopening of the US economy has helped to power the Nasdaq to fresh heights, again even as the upward momentum in other benchmark stock indexes showed signs of flagging. Gold remained bid despite that.

The gold bull is coming back

Analysts at TD Securities explained that the recent weeks have placed a cloud of doubt over the sustainability of the yellow metal’s bull market. 

After all, it’s hard to justify buying a shiny rock when global equity indices are surging at a record pace. Considering this environment, we break down the drivers of money manager accumulation & liquidation of gold and find that risk-on behaviour in markets has been the primary driver for liquidations in the past week.

The analysts go on to say, however, that those selling gold in response to risk-on are improperly discounting the macro implications.

The Fed will maintain its uber-easy policy for the foreseeable future, and may even utilize more tools (such as yield curve control) to support yields amid the forthcoming and massive Treasury issuances. In this context, real rates will ultimately be further suppressed — and, macro drivers such as this have been the primary driver for an accumulation of gold over the past months.

We continue to expect capital to seek shelter in gold from a prolonged period of negative real rates. Systematic trend followers are maintaining a long bias in gold, with a rising hurdle rate for liquidations, the analysts said. 

Fed outlook

Meanwhile, analysts at Westpac explained that the major event of the day will be the FOMC’s June monetary policy meeting. 

Having had great success buoying sentiment thus far, the Fed will keep rates on hold (4am Thu Syd). Following the policy announcement, Chair Powell will deliver the post-meeting press conference (4:30am). There will be considerable interest in the “dots” of FOMC members’ interest rate projections, which have not been published since December 2019 and on any discussion of measures such as yield curve control.

Gold levels

  • Gold Price Analysis: XAU/USD meets resistance just under $1720

 

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