4 weeks of sharp falls for Gold

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The price of gold has had a sharp contraction in recent weeks and some days with falls greater than 300 pips. Gold reacts to global conflicts and the movements of banks in reaction to them.

This week, Gold started with its first two days of declines, reacting to the  Fed’s  rate hike from  0.50% to 1.00%, the biggest increase in 22 years. In addition, today the president of the Fed-Cleveland, Loretta Mester, supported the monetary tightening by pointing out that they would maintain a pair of increases of 50bp (for June-July marked by Powell) and up to 75bp expecting it to exceed 2.5% for the reduction, emphasizing that no option will be ruled out if inflation does not fall in Q2, as inflation is currently the highest in 40 years. Now this week’s focus is on the annual CPI with a forecast of 8.1% expecting a reduction of 0.4% from the previous one at 8.5%, an underlying CPI with a forecast of 6.0% with a reduction of 0.5% compared to the previous one of 6.5%, percentages not seen since 1980.  In addition, oil inventories could go from 1,302M to -0.457M.

 “We don’t rule out 75bp forever, right? The pace we’re going at now seems right to me” – “We’re going to have to assess whether inflation is really going down, and then we can get more information after making a couple of those hikes (50bp) to watch” Loretta Mester on Bloomberg TV.

On the other hand, the Dollar continues to hold steady despite the pullback of Treasury yields to 2.94% and the risk reduction giving the bears a bit of an edge in the metal, but will it stay the same tomorrow after the data?

However, gold also remains the usual safe haven from global issues such as Covid restrictions in China, the Ukraine-Russia war, the increase in global inflation coupled with the crisis due to the pandemic, and the increase in the price of gas and oil for the eurozone from the Russian energy ban.

XAUUSD

The price of gold has remained under pressure in recent weeks after having broken upwards the year’s triangle, marking a journey that went from the 1,780s to mark a maximum at 2,070.35 very close to the historical maximum of 2,075.08. However, it did not manage to stay above the psychological level of 2,000, giving a fall to the already broken trendline of the triangle breaking the 1,900, the 21-week SMA and for the moment stopping at the 50- and 100-week SMA in 1,833.52 and 1,840.30 after a drop of more than 400 pips in this active weekly candle.

The ADX is at 28.45 with bearish bias, the -DI is crossed above the +DI and is at 23.72.

In the daily timeframe we can observe the failure of Gold to sustain the 2,000 highs, activating an OB condition and the beginning of a sharp downwards move for gold. The asset turned back below the 100-day SMA and the 200-day SMA at 1,835.52, very close to the triangle, which could provide a strong support level at 1,830, the last buying level before the psychological level of 1,800.00. In the case of a rebound from the latter, gold could recover 1,850.00, the 100-day SMA. On the flipside, falling below 1,800, we would expect supports at previous lows marked by this triangle that could reach 1,700.00 and even the 200-week SMA at 1,625.06.

ADX is at 26.34 with bullish bias rebounding at the level of 25, +DI at 12.88 being surpassed by the -DI at 31.12 marking a possible start of downtrend, if this configuration manages to be maintained.

Sources

https://elintranews.com/usa/2022/05/10/polemica-presidenta-del-banco-de-la-reserva-federal-sostiene-su-respaldo-a-las-alzas-de-las-tasas-de-interes/

https://www.bloomberglinea.com/2022/05/10/mester-de-la-fed-respalda-alzas-de-medio-punto-o-mas-si-persiste-inflacion/

https://es.investing.com/news/economy/rendimiento-de-bonos-eeuu-cae-mientras-el-mercado-reevalua-el-riesgo-de-inflacion-2247831

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Aldo Zapien

Market Analyst – Educational Office – Mexico

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