GOLD: As APAC Markets Fall, Gold Price Action Echoes Bearish Behavior

Sep 28, 2022 09:10AM +05:00
VOT Research Desk

Discussion Points

The View from the Market:

As Asia-Pacific stocks fall on Wednesday, gold prices are slightly lower. Fundamental conditions are bad for gold because breakeven rates are dropping. XAU/USD appears ready to repeat its bearish price action behavior.

After an overnight bounce that saw the majority of its intraday gains trimmed throughout Wall Street trading, gold prices are slightly lower in Asia-Pacific trading despite a risk-off move in equity markets. Prices are down approximately 0.3 percent. After a sharp drop on Monday, when traders aggressively sold UK Gilts, which led to an increase in global government bond yields, the modest price action followed.

Bullion bulls do not find the sideways movement particularly encouraging. It echoes the recent six-week-old patterns: consolidation, then dumping. The soaring value of the US dollar and rising Treasury yields have been the primary obstacles for XAU. Despite many Fed critics, both have increased exponentially as a result of a Federal Reserve that is laser-focused on cruising inflation.

The most recent COT data from the CFTC shows that the price action has mirrored the behavior of gold speculators. Risk assets were heavily impacted by larger shifts in market sentiment, which would have benefited the yellow metal if not for the bond exodus caused by the FOMC. The gap between the nominal and inflation-indexed yields on a 2-year US Treasury fell to its lowest level since January 2021.

The market-based inflation outlook is bad news for XAU, especially with the Fed still being hawkish. The Conference Board’s Expectations Index for September was also bolstered by consumers’ rising economic optimism due to falling gasoline prices. However, this won’t matter until the FOMC gives in unless markets regain confidence in a pivot thesis, which would lower bond yields. The personal consumption expenditures price index (PCE), which is expected later this week, may bring markets closer to that scenario, though it is unlikely.

Before prices moved another leg lower since August, a Bear Flag, Wedge, and Pennant-shaped consolidation period formed. As long as prices have remained consistently above the 1620 level this week, that consolidation that serves as yet another foreshadowing of a selloff may be developing now. The psychological level 1600 is up for a test if the pattern continues.

Technical Indicators Sep 28, 2022 05:01AM (GMT-4:00)

Moving AveragesSep 28, 2022 05:01AM (GMT-4:00)