A recent break above resistance has triggered a newfound momentum in the gold price. Interestingly, this newfound uptick has been matched by a flurry of lower profile downside moves. This suggests that the bears are still in charge, and the XAU/USD could retrace some of its gains in the wake of the US Federal Reserve’s hawkish stance.
The gold price shuffle has taken place over a series of sessions, and is coiled on lower time frames. On the other hand, gold’s long term direction remains ambiguous. It is also highly correlated to rates. In the event of a rate hike, the opportunity cost of holding non-yielding bullion will increase, especially if the Fed continues to tighten the screws on the economy. Until that change in course, gold will likely remain in a state of flux.
While the gold price may be on the defensive, the XAU/USD has made the most of the situation, thanks to its affinity for a descending pitchfork’s upper median line. As such, the XAU/USD might see some sharp movements in the wake of the CPI data on Wednesday. Additionally, the market is betting on a 25 basis point rate hike at the next meeting. That being said, the Fed is not the only game in town. Some of the major players are still hesitant to raise interest rates too quickly. Similarly, the UK GDP and Prelim UoM Consumer Sentiment are also weighing on the currency.
Gold is an anti-fiat metal and, to be frank, has had an off year. Its biggest strengths come from its ability to protect investors from volatile currencies, although that’s not to say that it’s not sensitive to rate changes. Moreover, a number of global countries are looking to reduce their current account deficits, and gold has a unique role to play in that arena. Nevertheless, the US Dollar is the yardstick by which gold is measured throughout the world. With that said, a slew of US Treasury yields have driven the price of the yellow metal into a rut.
As such, the gold price is expected to bounce back. XAU/USD has now risen above the 150% Fibonacci line on the pitchfork’s midpoint, albeit only by a hair. The fliers of the week include the CPI and UK GDP figures. Both are expected to show signs of improvement, but the former is more important to the latter. Of course, a spike in inflation could lead to a bigger impact on the monetary system. However, as such, it’s a matter of time before the Fed takes the first step towards normalizing its pace of rate increases.
Lastly, the gold price has a name to live up to. It is still an attractive investment, particularly during periods of political uncertainty and volatility. The real test is whether the price of gold can sustain its momentum.
