Search ForexCrunch
  • Gold is firm at the start of the week, testing critical resistance.  
  • The US dollar bumps along an important support structure.  

Update: Gold (XAU/USD) remains on the back foot, down 0.16% around the intraday low of $1,877.32, amid the initial Asian session trading on Tuesday. Having cheered the US dollar weakness and risk-on mood, gold seems to consolidate recent gains as the US Federal Reserve (Fed) officials stay divided over the need for tapering talks. Also negative for gold prices could be the US inflation expectations that direct last week’s rebound towards a multi-day high.

Following the comments rejecting reflation fears from Fed Governor Lael Brainard and St. Louis Fed President James Bullard, Kansas City Federal Reserve President Esther George mentioned, per Reuters, that she doesn’t dismiss the fears of an inflation surge.

It should, however, be noted that the S&P 500 Futures stay mildly bid while following Wall Street’s gains even as Fed policymakers trouble market sentiment and gold prices of late.

Moving on, gold traders should pay attention to the Fedspeak ahead of Friday’s Core Personal Consumption Expenditure (PCE) Price Index figures for Apri for clear direction.

 

The price of gold is rising 0.11% at the time of writing, riding the 10 and 20 EMAs on the 4-hour chart while the greenback languishes near four-month lows.

At the time of writing, XAU/USD is trading at $1,883.47 and has travelled from a low of $1,875.20 to a high of $1,887.07.  

The dollar index, DXY, has traded around the 90 mark and is currently down 0.22% on the day, treading water  above a four-month low on Friday of 89.646.

Meanwhile, there are plenty of  Fed speakers lurking and there are key data towards the end of the week that should prevent markets from getting too bearish on the greenback

The dollar can hold firmer in a market where traders ”have  to start pricing in a slightly more hawkish Fed going forward,” Win Thin, global head of currency strategy at Brown Brothers Harriman (BBH) wrote today.  

In recent sessions, we have heard Fed officials turning more hawkish of late who are embracing the notion of tapering coming sooner rather than later.  

”The upcoming June Dot Plots will be very interesting, and we suspect that more than four will see the first hike coming in 2022.    Yet we are disappointed that the US  10-year yield begins this week at 1.62%, near the bottom of recent ranges,” analysts at BBH  said.

”However, the bigger drop in inflation breakevens has pushed US  real yields higher, with the real 10-year at -0.82%, the highest since April 30.    A continued rise should help the dollar get more traction.”

Looking forward, data due on Friday, including US  personal consumption and inflation figures, could move the markets to anticipate a more hawkish tone from the next Fed policy meeting on June 15-16.

Another theme that markets are watching out for is  progress on a new stimulus package in the United States after the White House pared down its infrastructure bill to $1.7 trillion on Friday but failed to gain Senate Republican backing.

Meanwhile, analysts at TD Securities argued that ”it’s too early for talk of taper talk to dent markets.”

”Ultimately, our rates strategists also caution that it is still too early for taper talk, which suggests  gold  bugs are likely to benefit from the ongoing increase in flows for the time being.”

Gold technical analysis

As per the start of the week’s analysis,  Chart of the Week: Gold bears lurking at monthly resistance,   the 4-hour chart is being monitored as the price creeps up on the critical resistance as follows: