Oct 3, 2022
VOT Research Desk
Key Insights and Analysis
At the beginning of the week, there is a brief respite for the price of gold.
Despite lower yields, selling pressure is back on the US dollar.
So long as the XAU/USD pair stays below the 21 DMA at $1,679, it will remain vulnerable.
The price of gold is back in the green at the beginning of the week, reversing Friday’s brief decline from $1,675—the five-day high. Despite the initial rebound in the US dollar on Monday, the bright metal has remained resilient so far thanks to the renewed weakness in Treasury yields. Investors cheered reports that UK Prime Minister Liz Truss was looking to scrap a 45% tax rate following crisis talks with the Chancellor following a brutal Tory backlash last week, but the dollar came under fresh selling pressure and resumed the previous week’s correction amid a return of risk-on flows.
On the aforementioned news, the US S&P 500 futures gained as much as 0.50 percent, while the GBP/USD pair soared past the 1.1250 support level. As a result of weak data on Asian factory activity earlier in the Asian session, fears of a global economic slowdown grew amid the inevitable tightening spree by central banks. The bullion maintained its bid tone while ranging from $1,670-$1660 despite the dollar’s two-way movement.
As the dollar rally slowed down throughout the week, XAU/USD broke out of a downtrend that had been in place for two weeks and closed the week with substantial gains on Friday.
Before the US payrolls report in September, investors took profits because they thought the recent rise in the dollar was too much. Despite the bullion’s failure to hold at multi-day peaks of $1,675 and sharp intraday declines after the Federal Reserve’s preferred inflation gauge, the US Core PCE Price Index, rose to 4.9% YoY in August from 4.7% in July, exceeding expectations of 4.7%.Expectations of a 75 bps rate hike by the Fed in November were raised by rising inflation.
Gold needs a daily close above the bearish 21-Daily Moving Average (DMA) at $1,679 following the recovery rally last week.
However, the round number of $1,670 and Friday’s high of $1,675 must first be cleared.
The 14-day Relative Strength Index (RSI) is sidelined just below the 50.00 threshold, indicating that bulls may have a difficult time resisting the bearish pressures and eventually cave in.
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On the downside, buyers have strong support at $1,660, which if broken will intensify bearish pressures toward the $1,642 low on September 29.
Overall, the bright metal’s risks remain skewed to the downside as long as it remains below the 21 DMA.
