Gold Price Drop: Strong Dollar and Fed’s Hawkish Stance Impact

Gold Price Drop: Hawkish Fed, Strong US Labor Market, & Rising Yields Drive Continued Declines in Gold Values.

Gold prices are facing a challenging phase, marking the eighth consecutive trading day of decline, primarily due to the strength of the US dollar fueled by hawkish comments from the Federal Reserve. The recent upbeat US JOLTs job openings data further reinforced the robustness of the US labor market, intensifying the pressure on gold from a hawkish perspective. The focus remains on key economic indicators such as ADP employment change, jobless claims, and the upcoming Non-Farm Payroll (NFP) report, which could impact gold prices significantly if the trend of job openings persists.

Gold Price Drop

Federal Reserve official Mester’s statement indicating a potential rate hike at the next meeting if the current economic situation continues has added to the downward pressure on gold. Moreover, real yields have surged to levels last seen in November 2008, diminishing gold’s attractiveness as it lacks interest-bearing features.

Today’s spotlight is on the US ISM services PMI release, which is crucial for a primarily services-driven economy like the United States. Market expectations suggest a minor decline in this indicator, which might relieve gold bulls if the data aligns.

Market sentiment is reflected in the implied Fed funds futures, indicating a growing preference for another interest rate hike this year. The declining cumulative rate cut figure supports this forecast, which is currently at 58bps.

Technical Analysis

 XAU/USD shows the yellow metal in highly oversold territory, as the Relative Strength Index (RSI) indicates. However, it’s important to note that oversold markets can persist in this state for a considerable period. The moving averages form a death cross pattern, exposing the psychological support level at 1800.00 for the first time since December 2022.

Current price levels align with the 200-week moving average, making the weekly candle close pivotal. A breach below this level could further weaken gold, whereas a defense of this support zone might result in a long lower wick, suggesting potential relief for gold bulls.

Key Levels

Resistance:

1900.00

1884.89

1858.33

Support:

1800.00

1750.00

1725.71

Market Sentiment: Bearish

Retail traders, as per IG Client Sentiment (IGCS), are predominantly long on gold, with 85% of traders holding long positions at the time of this analysis.

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