Gold achieves new high levels on Fed rate hike. Crude falls. Gold went north at market reopened but rebounds quickly to new tops.
Gold benefits from Fed’s stance and the US dollar weakening
Following today’s North American close, gold prices began to climb while the price of crude oil plummeted. The actions follow the (FOMC) decision Wednesday to increase its inflation target by 25 basis points to 5-5.25 percent.
On Wednesday, the US Dollar finished the day down versus every G-10 currency, perhaps supporting the price of gold. The rise in volatility in gold, oil, and several other commodities may be reflected in the actuality that the commodity-linked currencies. Like, the AUD, CAD, and NZD have had a rough start to Thursday.
Gold’s Technical View
Today, the COMEX the front contract for gold reached US$2,085.4 an ounce. Since the all-time of US$ 2089.2 in August 2020, that is the highest degree.
Despite it exceeding the US$ 2,078.8 higher achieved in March 2022. A Triple Top is now in effect unless a new high is set. A Double Top extends into a Triple Top. The price of COMEX gold futures valued in NYMEX WTI barrels of crude oil is at the highest point as of Feb 2021.
Both gold and oil fell back to closing levels from Wednesday following the Thursday open rush as markets adjusted to the Fed rate move.
With cuts factored in from as early as the Q3, interest rate markets seem to be calling the Fed’s play. The pivot in some of the phrasing looks to have received a lot of focus from the market. Despite this, Treasury rates continued to decline, with the 2-year bond hitting 3.81%. A significant decline from the top of 4.29% last month.
With the 10-year rate hovering at 1.15%, down from the peak of 1.38% reached on Monday, real yields are still stagnant. The market-factored inflation rate is determined from Treasury inflation-protected securities (TIPS). For a similar term is deducted from the nominal yield to calculate the actual yield.
Unsurprisingly, given the frantic price movement, gold volatility increased slightly. Parallel to how the VIX index measures S&P 500 volatility, the GVZ index analyzes the volatility of gold.
Crude oil declines
Following a 25 basis point increase in interest rates by the US Federal Reserve. Crude oil fell by about 7% in early morning trading in Asia before a bit settling down. US real rates have reached record levels as a result of tighter monetary policy. The US 10-year real rate recently hit a 15-year peak before declining marginally. According to data from the Federal Reserve Bank of Cleveland. Real interest rates and oil prices are adversely connected, according to academic studies.
According to the International Energy Agency, 90% of the increase in demand for oil will come from China. The unanticipated decline in China’s industrial activity in April, however, indicates that the post- Covid rebound is still patchy.
Technical Perspective
The 200-week moving average, the March bottom, and the median line of a descending wedge channel from early March. Serve as significant convergent supports that oil is currently challenging. Despite oil prices being close to their March low, the 14-week RSI has not reached a new bottom. While pricing activity is still in progress. An indicator that the fall may be slowing down is when momentum fails to establish a fresh low as the price does.
On the hourly graphs, a bullish hammer structure is an early indication that oil prices might have given in on Thursday morning in Asia. How it ends on the final two days of this week will determine a lot of things.
Bulls could feel more confident if an identical trend emerges towards the conclusion of the day on Thursday. And gets followed by a stronger closing on Friday. However, the route of least resistance for oil is slanting down unless the 82.00-84.00 resistance is broken. There is another buffer at the bottom point of 61.75 in August 2021, which is under the March bottom of 64.10.
