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Gold decreases weekly three times in a row as a general market sentiment whip saw

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Volatility by Omicron

After a fairly volatile week, Kim is on track to finish the week within 1% of its starting level (at the time of writing). This reflects the underlying market sentiment last week, despite witnessing considerable daily movements and trading well over $ 1800. As a result, the gold volatility index reached its eight-month high, as shown below.

Gold Volatility (.GVZ) edited by CBOE

Gold decreases weekly three times in a row as a general market sentiment whip saw

Source, Refinitiv, CBOE

The first concern about the Omicron variant on Friday the 26th pushed up the value of yellow metal as yields for the 10-year period from Monday to Wednesday fell by about 23 basis points, which is the opposite of financial yields. .. Similarly, U.S. dollar Gold prices rose further as metals fell in dollars during the same period. The market will basically revise the dollar price, which was already priced in 2023 with three rate hikes.

As the week progressed, early anecdotal evidence of the mild nature of the symptoms commonly observed in patients reached the newswire, somewhat reassuring the market. After that, gold fell. This may indicate how the market perceives yellow metal and, ultimately, the future path of rising interest rates that will have a negative impact on gold.

How long does gold maintain its luster?

Gold has recently flourished in one of the most controversial and bullish environments, as nominal interest rates in major economies approached zero and real interest rates turned negative. The real interest rate is the result of subtracting inflation from the nominal interest rate and is an indicator of purchasing power when investing in interest-bearing investments.

Until this year, inflation was very low and interest rates were at or near zero, as there was no economic activity against the backdrop of the global blockade. That is, the reward for investing in a money market account or similar interest-bearing investment provided a zero or negative real return. With interest-free assets, as the future prosperity of the world economy is highly uncertain and people exposed to metal can benefit from price increases when the real rate of return on other investments is seen. Some gold starts to look relatively good and is unattractive.

Soaring inflation keeps real yields in the negative territory, but financial markets ultimately decide on prices in anticipation of future interest rate hikes that will weigh on gold prices.

Real yield interpolated from the US Treasury daily yield curve, US 5 and 10 years

Gold decreases weekly three times in a row as a general market sentiment whip saw

Source: US Treasury, Nasdaq.com

Fast forward for today and we are witnessing Central Bank Rate hikes in New Zealand, South Africa, Russia and Poland Bank of England I’m considering a hike in December or early next year. 2022 and 2023 now indicate when major central banks are expecting rate hikes, which will once again make interest-bearing investments more attractive at the expense of gold. So while it is clear that gold will face significant price pressures, the question of when this will happen remains unclear, and the current volatility and uncertainty keeps the rise in sight.

So far, Spot Gold is around $ 1763 at a significant weekly level corresponding to the 23.6% fib level (from the August 2020 high to the August 2021 low), a higher priced foothold if respected. May function as. The Fed can make recent mentions NFP Overlooked as justification for being cautious, the more important unemployment rate of 4.2% is well below the 4.5% identified at previous addresses. Therefore, the possibility of this scenario is low.

Alternatively, if the interest rate market bets on an aggressively tapered timeline to cool the persistently rising inflation, testing and breaking at the $ 1763 level is still possible.

Spot Gold Weekly Chart

Gold decreases weekly three times in a row as a general market sentiment whip saw

Chart created by Richard Snow, IG

——–The work of the analyst, Richard Snow screenplay With DailyFX



Gold decreases weekly three times in a row as a general market sentiment whip saw

Source link Gold decreases weekly three times in a row as a general market sentiment whip saw

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