Gold 'vulnerable' to further selloffs
Current bearish sentiment is a temporary one, analyst says
After dropping below $1,800 an ounce under pressure from a stronger dollar and higher US Treasury yields, gold is attempting a minor bounce from weekly lows of $1,792 as it battles with the $1,800 mark amid a cautious market mood.
"Gold prices tumbled as Treasury yields soared higher on expectations a delayed recovery would allow the Fed to tolerate higher inflation in the short-term," said OANDA senior market analyst Edward Moya.
"Wall Street is ever so slightly more concerned with inflation and with Fed tapering likely happening in December, the curve will steepen and that should prove short-term negative for gold."
December Comex gold was last at $1,800.20, down 1.83 per cent on the day, while the 10-year Treasury yield was at 1.36 per cent and the dollar index was at 92.47. The market is anticipating that the Federal Reserve can continue to ignore rising inflation following a big miss on the US employment front.
Tuesday's nearly $35 gold drop is a significant reversal of last week's 1.0 per cent rally. And at these levels, the precious metal is "vulnerable" to further selloffs, Moya said while noting that the current bearish sentiment is a temporary one.
"The precious metal could fall towards $1,755, and if that level breaks easily, one last push lower could see prices target the $1700 level," Moya said.
Once the market can see past these next few months of pricing pressures, the reality of global disinflation forces will likely put an abrupt end to the move higher in Treasury yields, triggering a resumption of gold buying for many investors."
The US August jobs report revealed that only 235,000 positions were added instead of the anticipated 720,000. "Coupled with the resurgence of Covid, it likely removes any chance of a Fed September taper, but November still looks good," said ING chief international economist James Knightley.
The slowdown in job gains could indeed mean a more patient Federal Reserve going forward, especially regarding the highly anticipated tapering announcement.
According to FXStreet’s Haresh Menghani, the US bond yields will continue to play a key role in influencing the dollar price dynamics. This, along with the broader market risk sentiment, might provide some impetus to gold and allow traders to grab some meaningful opportunities.
This week, markets will also be paying close attention to the European Central Bank (ECB) interest rate decision on Thursday and whether there will be any new tapering announcement.
“There should be bullish implications for the EUR if the ECB tapers ahead of the Fed into yearend, which would continue to keep the commodity inflation trade in play," said MKS Pamp Group head of metals strategy Nicky Shiels.
Also on the radar will be Fed speakers on Wednesday and Thursday and US macro data releases, including the latest US PPI numbers.
Menghani said gold’s recent strong rebound from multi-month lows faltered near the $1,832-34 strong resistance zone. This should now act as a key pivotal point for short-term traders, which if cleared decisively will set the stage for a further near-term appreciating move. Gold might then accelerate the momentum towards the $1,853-55 area, en-route to the next relevant hurdle, near the $1,869-70 region.
“The 100-day SMA (simple moving average), around the $1,815 level, closely followed by the very important 200-day SMA, near the $1,810 region, could protect the immediate downside.
“A slide below the $1,800 mark would suggest that the upward momentum is waning and prompt some technical selling. The corrective slide could then get extended and drag the XAU/USD back towards the $1,778-74 congestion zone,” said Menghani.
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