Gold Prices Plunge
It’s been an interesting week across the board in markets with many noteworthy moments; hawkish minutes releases from the Fed and ECB, the UK PM resigning, oil falling and rising, there’s been plenty of action. However, talking with traders today ahead of the weekend it seems the main focus for most has been the breakdown in gold prices which has seen the metal falling to fresh 2022 lows. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
USD Breaks Out
The main driver behind the drop in gold prices this week was the fresh wave of buying in USD. The greenback broke out to 20 year highs (Dollar Index) as a combination of Fed hawkishness and global recession fears drove the Dollar higher. Despite concerns over growth prospects in the US, the Fed continues to reaffirm its commitment to pushing ahead with planned tightening and the market is now looking for a further .75% hike at the upcoming July meeting. With USD prone to further upside risks, gold prices look vulnerable to further downside in the near-term.
Additionally, given the weaker risk-backdrop as traders mull recessionary fears, gold prices don’t seem to be attracting the same safe-haven inflows they once did. With the Fed and the SNB embarking on monetary tightening, USD and CHF have overtaken gold as safe-havens of choice, creating additional pressure on gold prices during times when asset markets are falling.
Looking ahead, today’s US labour data will be closely watched. Should we see any further upside surprises in the data this will likely feed into higher prices for USD. In particular, traders will be looking at the average hourly earnings data. If wages are seen rising over the last month, this will feed into near-term inflation expectations, keeping Fed hawkishness firmly entrenched.
Technical Views
XAUUSD
Gold prices are continuing to travel lower within the large, bearish channel. The breakdown this week has seen price moving below main support at the 1791.63 level. Price is now on course to test the 1722.37 level support next. To the topside, if there is any break of the channel top, the main level to watch will be the 1871.04 level.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.