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Gold prices rise as the US dollar falls due to economic problems, where is XAU/USD headed? -by Ecork

Gold, XAU/USD, US Dollar, Treasury yields, US housing data, Industrial Production – Talking Points:

  • Gold prices rose as Treasury yields and the US dollar fell
  • Disappointing US housing data fueled economic woes ahead
  • Outside the Bank of Japan, XAU/USD looks to US industrial production

Gold prices rose over the past 24 hours, extending gains since the Federal Reserve’s interest rate decision this week. On the chart below, the yellow anti-currency metal can be seen rising as the US dollar and the two-year Treasury yield weakened throughout Thursday’s trading session. When the latter two move in the same direction, whether up or down, it tends to produce the most conviction for XAU/USD.

The DXY dollar index fell by one percent on Thursday, the most since May. A closer look reveals that markets have scaled back expectations for a Fed rate hike in one year. This can be seen by looking at the Federal Funds futures contract, where the implied yield of the 12th year contract fell to 3.73% from 4% earlier in the week. That may explain the drop in the two-year Treasury yield.

This came on the heels of relatively disappointing economic data from the US. Housing starts and permits gained 1.55 million and 1.69 million in May versus 1.69 million and 1.77 million expected, respectively. Initial jobless claims also came in at 229K vs. the consensus 217K. Meanwhile, the probability of a recession in the United States in one year is rising. Data from Bloomberg has odds of one at 31.5%, up from 20% earlier this week.

With the weekend approaching, the economic docket looks more subdued. Outside the Bank of Japan today, US Industrial Production at 13:15 GMT. Weakness is seen to 0.4% m/m from 1.1% previously. The softer reading could continue to exacerbate mounting economic problems. Gold may rally if markets accelerate price hikes in a year, but the broader fundamental picture remains challenging for XAU/USD as central banks continue to tighten policy around the world.

Main divers in the last 24 hours

Chart created with TradingView

gold technical analysis

On the daily chart, gold is still consolidating since XAU/USD apparently established support between 1787-1810. It appears that the falling trend line from March has appeared. Prices are approaching this descending line. It also appears that the immediate resistance is the 1869-1879 range. The next big move for gold can happen after a breakout outside this boundary. Until then, the path ahead may still be choppy.

XAU/USD daily chart

Gold prices rise as the US dollar falls due to economic problems, where is XAU/USD headed?

Chart created with TradingView

– By Daniel Dobrovsky, strategic for DailyFX.com

To connect with Daniel, use the comments section below or Tweet embed on Twitter

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