By Bhavik Patel
The gold market is unable to attract any bullish momentum as prices has slide below to $2,300 an ounce, even after data shows further weakness in the U.S. housing market as consumers appear reluctant to buy new homes.
Gold prices is trading lower for the second consecutive day on back of strengthening U.S. dollar, which reached a 38-year high against the Japanese yen. The decision by the Bank of Japan (BOJ) to continue its stimulus of buying bonds and keeping low interest rates until July has weakened the yen.
Currently, the dollar is up 1.140 or +0.71% against the yen and fixed at 106.811. Rising U.S. Treasury rates, which went up by 5-7 basis points across the curve, are exerting more pressure on gold.
Five-year notes were recently auctioned off, and the results were good with above-average non-dealer bidding. Market sentiment has been further negatively impacted by recent remarks made by Federal Reserve officials.
Fed Governor Lisa Cook did not provide a schedule for rate cuts, but she did concede that the labor market is gradually cooling and that inflation is progressing.
Fed Governor Michelle Bowman, however, declared that it was still premature to start lowering interest rates and even hinted at the prospect of raising them in the event that inflation continued.
These events occur right before Friday’s much-needed Personal Consumption Expenditures (PCE) report. All traders would be keenly eyeing Friday’s PCE report to see if inflation has further cooled down or not.
The combination of dollar strength, rising yields, and mixed signals from Fed officials continues to create a challenging environment for gold prices in the short term. The only silver lining for gold right now would be soft PCE data.
Along with soft PCE data, geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict lend some support to gold as a safe-haven asset. Although in the near term, the Federal Reserve’s hawkish stance will likely pressure the spot gold price.
In MCX, 70,000 is strong support and breach below that could open doors till 68,800. Trend has been weakening as RSI_14 is showing weakness. Any long positions should be avoided and fresh trades can be taken post PCE data which is due to publish on Friday.
Any weakening of data could provide jump to gold prices while higher than expected would lead to downfall in gold prices.
(Disclaimer: Bhavik Patel is a Senior Commodity/Currency Research Analyst at TradeBulls Securities. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
