Gold, XAU/USD, Real Yield, Federal Reserve, CPI, Technical Outlook – Talking Points
- Gold prices may fall further on the US Consumer Price Index (CPI)
- Gold ETF holdings drop with prices as bulls lose confidence
- XAU may threaten its annual decline in the event of an interruption of the accumulated support
gold prices moderates During Wednesday’s session in the Asia-Pacific region after falling overnight. XAU is now trading at its lowest since February 11th. The Federal Reserve’s renewed fight against inflation has effectively drained bullion for the most influential tailwind. The Fed is expected to provide nearly 200 basis points for additional tightening through 2022, according to Overnight Index Swaps (OIS).
This has dampened market-based inflation expectations, and real yields have continued to climb into positive territory, both of which are hurting the fundamental outlook for gold. Prices are currently down over 3% month-to-date, adding to the 2.10% decline in April. The movement has also turned the idea of the bull on its head. Calls for a recovery to the high-profile 2000 have largely disappeared from analyst expectations in recent weeks amid a hawkish reassessment among central banks.
The downtrend is reflected in gold holdings among exchange-traded funds (ETFs). Total known gold ETF holdings fell to their lowest levels since early April (see chart below). Some of that may be attributed to general volatility in the stock markets, but it doesn’t bode well for the outlook. Tonight’s US CPI reading may provide the next driver for prices, as a hotter than expected reading may boost the Federal Reserve’s bets on further rate hikes. Bloomberg Consensus estimates that US inflation is crossing the line at 8.1% on an annual basis.
Technical Forecast for XAU/USD
Gold fell to a major trendline stemming from the August 2021 swing low. The 200-day simple moving average (SMA) is acting as converging support. A break below this support will open the door for prices to test the 2022 low at 1778.50 although the psychological 1800 level may provide a level for the bulls to turn around if prices do not drop too quickly. The Relative Strength Index (RSI) is approaching the crossover of the oversold region, reflecting the recent weakness in prices.
XAU/USD daily chart
The graph was created using TradingView
— By Thomas Westwater, Analyst for DailyFX.com
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