Gold’s price drops from a five-month high as the US Dollar somewhat recovers intraday. US Treasury bond rates are increasing, putting pressure on the XAU/USD and reviving USD demand.
Risks associated with the price of gold should be limited by bets on the Federal Reserve hiking rates less firmly. Gold’s price falls from the $1,810 area, or the five-month high hit earlier this Monday, failing to benefit from the intraday gain. The XAU/USD slips below $1,800 during the early part of the European session and is now perched on a potentially dangerous 200-day Simple Moving Average (SMA).
The slight US Dollar resurgence is putting pressure on the price of gold. Following an early dip, the US Dollar has only partially recovered from its lowest position since late June, which is anticipated to impact the price of gold denominated in US dollars. The US’s Friday release of solid monthly employment figures and a pleasant surprise in pay growth raised the possibility that inflationary pressures will increase further. This improves the position of the dollar and fuels speculation that the Federal Reserve will continue to tighten monetary policy.
The price of the XAU/USD pair is further hampered by rising US Treasury bond rates. The Federal Reserve’s chairman, Jerome Powell, also predicted that the peak interest rate would be higher than expected this week. Consequently, the price of US Treasury bonds rises throughout the day, which is seen as another factor supporting the US Dollar and pulling money away from the non-yielding Gold price. Further weighing on the XAU/USD is the recent optimism about easing COVID-19 restrictions in several Chinese cities, which has dampened demand for traditional safe-haven assets.
To limit losses, the Federal Reserve wagers on slower rate hikes. At its next meeting on December 13–14, the Federal Reserve is anticipated to increase interest rates by a relatively small 50 basis points, but the downside is anticipated to remain cushioned—at least briefly. In the event of any big corrective slump, this should continue to support the price of gold, requiring careful positioning. The US ISM Services PMI, announced later during the early North American session, is now being anticipated by traders for short-term possibilities.
Technical Gold Price Outlook
Technically, last week’s extended surge past the significant 200-day SMA was seen as a brand-new trigger for bullish traders. Thus, buyers are more likely to be drawn to the $1,783–$1,782 range in the case of a future slump. The price of gold should thus be limited in its upward movement to the support level that served as the horizontal resistance breakpoint between $1,761 and $1,760.
On the other hand, unless some follow-through buying happens beyond the $1,810 zone, bulls may want to delay placing further bets. The price of gold may then continue to increase, perhaps reaching the next significant obstacle on the road to the supply zone between $1,843 and $1,845 near the $1,830 region.
In this article, we have covered the highlights of global market news about the Gold Prices, AUD/USD, USD/JPY and the Canadian Dollar.
Gold prices are in danger as FOMC wagers increase. U.S. retail sales could cause a crash.
During Wednesday’s New York trading, gold prices dropped under the 1,700 level, putting the yellow metal in danger of a potentially jarring decline. The US dollar and short-term Treasury yields were helped by the US inflation data, which also sent Federal Reserve rate hike bets soaring. The week will be concluded by the US retail sales report for August, which is due at 12:30 GMT on Thursday, and the September consumer sentiment report from the University of Michigan, which is due on Friday.
Those occurrences could be crucial for bullion prices because they will probably affect FOMC market pricing. A 100 basis point rate increase is one in four likely, according to Fed funds futures. If those odds rise, gold’s value as a financial asset will decrease. The Fed wants to achieve a soft landing, but it is more concerned with controlling inflation. However, a robust overall economy would mitigate the effects of higher interest rates. The FOMC would have more flexibility as a result.
However, a report on retail sales that was stronger than anticipated would probably be bad news for gold prices. Analysts predict that the headline figure will show a 0.1% decline from July, but that is only because gas prices are declining. The figure to pay attention to is one that does not include gasoline or vehicles. According to the Bloomberg consensus prediction, the price will rise by 0.5% from July. The initial Michigan consumer sentiment index is anticipated to increase to 60.0 on Friday from 58.2 in August. Inflation expectations are also covered in the survey, with estimates for the next year and the next five to ten years tracking at 4.6% and 2.9%, respectively.
Even if those economic prints come in below expectations, the most likely outcome after the CPI is a 75-bps Fed hike, which puts gold in a difficult position. Treasury yields will remain supported as a result, limiting the potential for price increases. Lower skew means that the path of least resistance. As the likelihood of a 100-bps rate hike rises, it is likely that XAU will decline. A bearish catalyst may be set off once Fed funds futures reach a 50% probability for the large price hike.
On the back of the jobs report, the AUD rose as investors anticipated RBA action. AUD/USD: Will it Rise?
After today’s jobs report, the Australian Dollar initially fell before surging, and the likelihood that the RBA will raise interest rates by 50 basis points at their next meeting in October slightly increased.
In August, the unemployment rate increased slightly from the previously reported 3.4% to 3.5%.
Instead of the 35k expected, the overall change in employment for the month was 33.5k. While there was a 58.8k increase in full-time employment, there were 25.3k part-time job losses in August.
As anticipated, the participation rate came in at 66.6%, up from the previous reading of 66.4%.
The incorrect reporting of the statistics by Bloomberg was the cause of the unusual price movement right after the number. Someone there could have a difficult day. The initial flash had zero jobs added but the unemployment rate was correct at 3.5%.
Japanese Yen Gained After BoJ Hinted Intervention, What Could this Mean for USD/JPY?
The Japanese Yen gained 1.08% against the US Dollar on Wednesday, which is a notable achievement given JPY’s persistent depreciation since 2021. What was the cause of this move? Reports crossed the wires that the Bank of Japan conducted a rate check, opening the door to market intervention for the first time since 1998. Traders were spooked. Should they be?
Prior to this event, various Japanese government and monetary policy officials have been offering verbal jabs against the currency for some time. There was no physical activity. The BoJ continues to be in a very different position from its major peers at the end of the day. The central bank keeps up its ultra-loose monetary policy, which includes negative interest rates, ongoing quantitative easing, and yield curve control.
Nearly every other significant central bank has tightened policy in the interim. The Japanese Yen is probably under pressure due to this widening gap between them and Japan. To understand the story, all you need to do is look at the yield spreads on government bonds. The action on Wednesday might have been viewed as the next step by officials in their efforts to control the Yen.
Funny enough, a push for intervention could also be interpreted as a sign that the Bank of Japan might keep policy loose. Former board member Goushi Kataoka mentioned that at the earliest, a BoJ policy shift might come by the middle of next year. It seems that in the interim, the government may have to use other measures to help hold up the Yen.
Canadian Dollar Technical Analysis: CAD/JPY, USD/CAD Rates Outlook
The Canadian Dollar has turned lower over the past few days, in line with risk appetite more broadly. Rapidly rising Fed rate hike odds have pushed up the US Dollar (via the DXY Index) and US Treasury yields, while proliferating global recession concerns have weighed on energy prices. The net-result has been that USD/CAD rates are pushing their yearly highs, while CAD/JPY rates have dropped to their lowest level in over a week.
In the prior note at the end of August, it was observed that “continued deterioration in US equity markets, noted by rising US 2-year yields and an elevated VIX, could help pave the path for USD/CAD rates to retest their yearly high above 1.3200 in short order.” Since then, including today, the pair has traded above 1.3200 on occasions, but has not yet reached the yearly high at 1.3224. Having broken above ascending triangle resistance that’s been forming since April, the near-term bias appears to be to the topside.
Please click herefor the Market News Updates from 13 September 2022.
On Monday, gold recovered some of its early losses and went positive for the fourth day in a row. During the first part of Monday’s European session, the momentum drove the gold price to a new three-and-a-half-week high, circling around $1,772-$1,773. The post-FOMC selling bias in the US dollar has not faded on the first trading day of the new week, which is turning out to be a significant element that is to the advantage of the commodity priced in dollars.
The Federal Reserve sounded less hawkish last week and signaled that it might moderate the pace of the policy tightening campaign at some time in the future in response to evidence of a downturn in the economy. In addition, the dismal publication of the Advance US Q2 GDP data confirmed a technical recession. It encouraged predictions that the Fed would not boost interest rates as rapidly as prior forecasts indicated. Because of this, the US Dollar is subjected to some follow-through negative pressure for the fourth day in a row.
In addition to the consistent selling of USD, the prevailing cautious attitude surrounding the equities markets further supports the safe-haven commodity of gold. The recent upbeat surge in the markets seems to be losing momentum as concerns about a worldwide economic slowdown intensify. Following the dismal announcement of the official Chinese Manufacturing PMI for July, which fell back into the contraction zone, the fears have again come to the surface. This results in investors’ desire for perceived riskier assets being muted.
However, it is yet unknown if bulls will be able to capitalize on the rise or choose to take some winnings off the table. The potential for a goodish return in the rates on US Treasury bonds might limit losses for the USD and contain gains for the non-yielding gold. A possible course of action for investors is to hold off on making risky bets in the run-up to this week’s crucial central bank event risks. Tuesday is the day that the Reserve Bank of Australia (RBA) is expected to reveal its policy decision, and Thursday is when the Bank of England is due to convene.
In addition, important US macro data planned to be released at the beginning of each new month will also play a vital role in defining the next leg of a directional move for gold. The publication of the ISM Manufacturing PMI on Monday sets off a week that will be rather eventful for the economy of the United States. This, in conjunction with the rates on US bonds, will affect the USD and offer some impetus to spot prices. The monthly employment report (NFP) released in the United States on Friday will continue to be the primary focus.
Due to its unique position within the global economic and political systems, the gold market provides significant liquidity and exceptional potential to benefit in almost all circumstances, regardless of whether it acts like a bull or a bear. Even while many people decide to buy the metal directly, trading on the futures, equities, and options markets provides excellent leverage with manageable risk.
Because they are unaware of the distinctive features of the global gold markets or the hidden hazards that might steal gains, market participants often fall short of maximizing the benefits of gold price changes.
Although trading in the yellow metal is simple, it requires specialized knowledge. Incorporating these four strategic measures into daily trading routines can benefit experienced investors, but beginners should use caution. While waiting, explore until you are familiar with the nuances of these intricate marketplaces.
1.) What Drives Gold Price
Gold is one of the world’s oldest currencies and has a strong psychological hold on the financial industry. Yellow metal is a topic on which almost everyone has an opinion. Yet, gold itself only responds to a small number of price triggers. Each of these factors divides into two halves, creating a polarity that affects trend intensity, emotion, and volume:
-Both inflation and deflation
-Fear and greed
-Demand and supply
While market participants trade the yellow metal in response to one of these polarities when another is driving price movement, they run a higher risk. Say, for instance, that the global financial markets experience a selloff and gold has a significant rise. Many traders enter the market assuming that fear is driving up the price of the yellow metal and act on this assumption. Inflation may have been the cause of the stock’s drop, drawing a more technical audience that will aggressively sell against the gold surge.
In the global markets, combinations of these factors are always at work, creating long-term themes that follow equally long uptrends and downtrends. For instance, the 2008 Federal Reserve (FOMC) economic stimulus initially had minimal impact on gold because market participants were preoccupied with the intense panic that followed the 2008 financial crisis.
2.) Recognize the Crowd
Numerous groups with various, often competing interests are drawn to gold. Gold collectors, known as “gold bugs,” are at the top of the heap, investing a disproportionate amount of family wealth in gold stocks, options, and futures. These long-term participants are seldom deterred by downward trends and ultimately push away less ideological participants.
Additionally, institutional investors who purchase and sell gold alongside currencies and bonds in bilateral strategies known as “risk-on” and “risk-off” engage in significant hedging activity. Funds may quickly trade these combinations by assembling baskets of securities that balance safety and growth (risk-on and -off, respectively). They are particularly well-liked in marketplaces with much disagreement and low levels of usual public engagement.
3.) Study the long-term chart.
Spend some time being intimately familiar with the gold chart, beginning with a long-term history that spans at least 100 years. The metal has not only established patterns that lasted for decades, but it has also slowly declined for extended periods, depriving gold bugs of earnings. This study pinpoints price levels that should be kept an eye on from a strategic perspective in the case and when the yellow metal makes a comeback to test them.
The following slump persisted throughout the late 1990s before gold began its legendary rise, which reached its peak in February 2012 at $2,235 per ounce. Since then, there has been a gradual fall that has lost almost 600 points in four years. Even though it saw its highest quarterly rise in three decades in the first quarter of 2016, it is now priced at $1,882 per ounce as of May 2022.
4.) Select Your Area
Liquidity fluctuates with gold movements, rising or falling substantially during times of increased volatility and falling during times of relative calm. Due to far lower average participation rates than stock markets, this oscillation has a more decisive influence on the futures markets. The CME Group, based in Chicago, hasn’t significantly improved this equation in recent years despite adding new products.
The 100-oz. contract, the 50-oz. mini contract, and the 10-oz. micro contract are the three principal gold futures that CME provides. These contracts were introduced in October 2010. The volume of trading for the micro contract exceeded 6.6 million in 2021, but only 26,000 for the mini and 1.2 million for the most significant contract.
Although long-dated futures held for months are unaffected by this limited participation, trade execution in short-term positions is severely impacted, driving up slippage costs.
Although the VanEck Vectors Gold Miners ETF (GDX) grinds through more significant daily percentage fluctuation than GLD, it comes with a higher risk due to the volatility of its association with the yellow metal. The influence of spot and futures prices is reduced by the extensive price hedging used by large mining firms, whose operations may also retain considerable holdings in other natural resources, such as silver and iron.
According to traders familiar with the matter, gold at the BOE has recently traded as much as a dollar an ounce below benchmark London prices. According to one of the traders, such a large discount usually indicates a large institution, such as a central bank, selling a significant amount of reserves in order to raise US dollars or other currencies.
The Bank of England’s vaults house 5,676 tonnes of bullion, making it one of the world’s largest stockpiles, which it holds on behalf of other central and commercial banks. Gold held by central banks is typically bought and sold in bilateral trades between large institutions at prices that are typically within a few cents of the market rate.
Gold in central bank vaults traded $1 lower than the London benchmark.
The price of gold stored at the Bank of England has been unusually low, indicating that central banks may be selling some of their holdings.
According to the most recent World Gold Council data, central banks increased their gold holdings by nearly 456 tonnes in 2021, continuing a long-running trend driven by emerging markets diversifying their reserves away from foreign currencies. Brazil, Thailand, and Ireland, which made its first purchase since 2009, were among the notable buyers.
Purchasing could slow in 2022 as financial institutions seek to hold more interest-bearing dollars as the Federal Reserve prepares for aggressive monetary tightening. The dollar is on track for its biggest annual gain in seven years, putting pressure on emerging market currencies and borrowing costs.
The BOE gold discount has narrowed since the dollar-an-ounce margin, but it remains large by normal standards, according to the people, who did not want to be identified because they were discussing private information. Bullion has fallen more than 12% since its peak in March, leaving it nearly unchanged this year.
Private home gold holdings in the Czech Republic are twice as large as the Czech National Bank’s gold reserves.
Private persons in the Czech Republic presently hold 19.35 tonnes of gold, according to government figures. This is more than twice the quantity of gold housed in the vaults of the Czech National Bank, which stood at 10.6 tonnes at the end of 2021. In affluent nations, such disparities are extremely prevalent.
German homeowners, for example, possess more than 9,000 tonnes of gold, while the Bundesbank has 3,362 tonnes. In Italy, 6,418 tonnes of gold are privately owned, compared to 2,452 tonnes owned by the Central Bank, while 4,714 tonnes of gold are privately owned in France, compared to 2,436 tonnes in the bank.
Gold, according to the Czech National Bank, is not an ideal medium for modern central banks to retain foreign exchange reserves.
Gold has no practical use for the central bank’s monetary policy and does not function as foreign currency reserves in the true meaning of the term.
Foreign exchange reserves are unique in that they can be purchased or traded at any moment. Gold is insufficiently liquid, its value is very erratic, and its operational costs are expensive.
In 2021, the Czech National Bank acquired 1.25 tonnes of gold for its foreign exchange reserves four times. However, after subtracting gold utilised in the creation of gold coins, net purchases amounted to 777.5 kilos.
In 2020, the central bank began its gold purchases, purchasing around 1,835 kg. He noted that the trend of rising gold holdings in the central bank’s vaults in recent years is clear.
Since 2009, the Czech Statistical Office has started tracking the quantity of gold imported into the Czech Republic. Total imports of the precious metal in different forms – from gold dust for the electrical sector to semi-finished items such as plates, sheets, and wires for the jewellery industry – reached at 73 tonnes at the end of November last year.
For 5,000 years, gold has served as a store of wealth, providing security that other investments cannot equal. It hedges against currency deflation, geopolitical risk, and product price inflation.
GOLD
The yellow metal has a wide range of commercial applications. It is inert; does not tarnish or corrode. Gold does not require lubrication, maintenance, or repair. It can also be melted and molded easily into wires. As well as hammered into micro-thin sheets or alloyed with other metals.
It is non-allergenic and conducts electricity. Gold is most commonly used in jewelry due to its beauty and shine.
It is, nevertheless, used in electronics, space exploration, and medicine (including dentistry and treatment for rheumatoid arthritis and cancer). Gold has always been linked with achievement — Olympic medals, Oscars, and Grammy awards are all gold-plated.
Gold mining has been falling since 2000, while demand has increased. This lends credence to the theory that the price will climb. Because it is not positively connected with stocks or bonds, it is a good complement to a portfolio diversification strategy.
It is important to note that gold dealers, pricing, and fees are not regulated. While you may pick securities, many of them (such as gold mining equities) frequently depart from the metal’s price. It never evaporates or expires. Its supply expands year after year, implying that growing demand is required only to keep prices from plummeting.
For at least four millennia, gold and silver. It has served as a store of value and a means of trade in every civilization in every corner of the globe. It provides unparalleled access to people of various economic backgrounds and technological knowledge. Gold is the ultimate money of central banks, while silver is the cash of the people.
Bitcoin
Bitcoin, on the other hand, is the only completely noncorrelated asset type that provides exceptional benefits to portfolio diversification (improved returns with lower risk).
As a digital asset, Bitcoin is the easiest to hold since it is available over the internet at any time and from any location. The Bitcoin network has never been hacked, giving investors trust. Also, there are hundreds of business users – revolutionizing every aspect of global trade.
There is also an opportunity for cryptocurrencies because their digital character distinguishes them from gold and silver. However, this feature assures that cryptocurrencies will never replace gold and silver, and will instead increase the metal’s value.”
Many people believe that Bitcoin and blockchain, the underlying technology used to generate bitcoin, are the most transformative technical advancements since the internet itself. In fact, many people refer to Bitcoin as “Internet 3.0”. It’s because, unlike the original internet, which linked people (think Facebook), and Internet 2.0, which connected objects (Bluetooth), Internet 3.0 links money (Bitcoin).
The most persuasive argument, however, is that, unlike gold, the supply of Bitcoin is really set. Only 21 million Bitcoins will ever be created, representing a fixed supply in the face of rapidly expanding demand. Individuals were the only ones that purchased Bitcoin in their early days.
While bitcoin is the “new kid on the block,” it’s disputed whether it will cut into gold’s market share for a variety of reasons. Because neither Bitcoin nor gold can be diluted or debased. They offer considerable benefits over fiat currencies. There is a chance that bitcoin will cease to exist as a result of unfriendly legislation. Some bitcoin derivatives are already illegal. Companies such as Facebook that have sought to launch cryptocurrency have been thwarted.
So, while bitcoin is a newer investment that is undoubtedly getting a lot of attention, gold has held its worth for millennia. It is exceedingly doubtful that bitcoin will have the same amount of durability.
Bitcoin is just 10 years old and has only existed in one monetary regime. The standard variation of bitcoin’s price is 75%. Making it an ineffective store of value.
Recent price history demonstrates a significant tilt toward speculative interest. So much so that corporations are enticed to place bitcoin on corporate balance sheets to help develop assets in excess of business performance.
Cryptocurrency is an inadequate monetary alternative. In the United States, submitting your taxes necessitates the voluntary declaration of your bitcoin gains. If a cryptocurrency transaction automatically generated an IRS statement, as a stockbroker transaction does, the speculative outlook may deteriorate.
Gold price has been climbing this month, with significant resistance above the 1830 mark. Prices increased as a result of a recent crossover of the 20-day and 50-day Simple Moving Averages (SMAs).
If the gold bulls fail to break through the 1830 level, a retracement to the rising 20-day SMA could be in order. A psychological barrier around 1800 is a likely downside objective.
Gold price surged overnight as traders pondered interest rate bets. Price soared beyond the high-profile 1800 mark last week after the Bank of England surprised investors by leaving interest rates steady.
The 10-year Treasury yield climbed overnight but fell short of the psychological mark of 1.5 percent. The closely watched rate fell throughout Tuesday’s Asia-Pacific session, allowing gold to gain.
Last week, rate hike bets on the Federal Reserve shifted to the right, with rate traders pricing in a less aggressive policy path. On Tuesday, the chance of a 25 basis point hike at the June 2022 FOMC meeting fell to 45.5 percent, down from 47.4 percent a week earlier. Despite the fact that the employment data was stronger than predicted.
For rate-sensitive gold price, the Fed’s prediction is critical. Traders are still anticipating the publication of US inflation data later this week. The Fed’s outlook is an essential determinant for rate-sensitive gold price. Nonetheless, traders are anticipating the publication of US inflation data later this week.
While Fed Chair Powell maintains that rising price pressures are just temporary, he recently recognised that inflation has been more stubborn than previously believed. However, a few more months of robust inflation data might push rate hike forecasts forward.
