Gold, XAU, Powell, Inflation, Recession, Technical Outlook – Talking Points
- Gold prices pared overnight gains with buying of Asia-Pacific shares
- Oil prices and recession risks are key factors for XAU’s short-term trend
- XAU/USD is trading in a tight range as a possible trend shift looms
Gold prices are paring gains after stocks on Wall Street turned negative overnight. The yellow metal has benefited from its allure as a hedge against stock market dips. The Nasdaq 100 (NDX) snapped a two-day winning streak, ending the day 0.16% lower. Stocks in the Asia-Pacific region rose significantly in trading Thursday, which explains gold’s move lower. Federal Reserve Chairman Jerome Powell raised concerns about a global recession in his testimony before the Senate Banking Committee early this morning.
Mr. Powell’s comments are of particular interest to XAU/USD as the US central bank raises interest rates to fight price hikes. Inflation has helped support bullion, but it faces headwinds from higher Treasury yields stemming from the actions of the Federal Open Market Committee (FOMC). Typically, higher government bond yields are negative for gold because it is an interest-free asset.
Meanwhile, market-based inflation bets have eased, in part due to the Federal Reserve’s 75 basis point rate hike. The two-year US break-even rate fell to 3.68% on Wednesday, the lowest level since February. This drop indicates that the Fed’s efforts to suppress inflation are working as intended. Moreover, lower oil prices is another factor likely to affect gold prices, with oil being a major driver of inflation more broadly. West Texas Intermediate crude prices are down nearly 5% from Monday, extending last week’s 8.5% decline.
This drop in oil prices reflects the increased prospects of a recession, which could benefit gold. The tenthin It puts gold in a precarious position among conflicting fundamentals. Gold attracts investors during downturns, as XAU provides a store of value. Michigan’s latest June Consumer Confidence Survey will see updated consumer expectations on inflation on Friday, which could affect inflation expectations.
The remainder of this week is somewhat quiet for economic events, but an update of the Atlanta Federal Reserve’s real GDP estimates is scheduled for Monday, June 27. The latest update saw the Q2 GDP growth measure drop to 0.0%, which attracted significant interest. Dropping into negative territory on the next update may cause some volatility in the precious metals market.
Technical Forecast for XAU/USD
Prices are tightly circling above the 1830 level since Monday. During the same time, the RSI and MACD settled below their midpoints. The behavior may indicate that a breakout or a breakdown may be in order. On the downside, the psychologically important 1800 level may act as support. Alternatively, the 61.8% Fibonacci retracement or ascending trend line may set prices.
XAU/USD daily chart
The graph was created using TradingView
— By Thomas Westwater, Analyst for DailyFX.com
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