Gold Returns to Bearish Area

Gold is under renewed selling pressure, having risen to 1,952 on the first trading day of September, breaking out of the ascending channel on the 4-hour chart and returning to the May-August bearish channel.

XAUUSD on Wednesday’s trading closed -0.4% down, a 1-week low. Wednesday’s rise in the US dollar index to a 5-month high was bearish for gold. In addition, Wednesday’s rise in global bond yields negatively impacted prices, coupled with Boston Fed President Collins’ hawkish comments that the Fed “needs to keep rates at capped levels for some time,” as despite slowing demand, demand still exceeds supply, putting more pressure on prices.

The recent rise in US long-term bond yields compared to short-term bond yields would normally support the view that the US economy is entering a new growth phase. Such developments are usually unfavourable to gold prices which tend to underperform, as investors are in a risky asset-seeking mode, which usually occurs at the start of a positive economic growth cycle.

The decline in spot gold prices in August suggests that the precious metal is indeed following bond guidance with anecdotal evidence suggesting that retailers have joined institutions in selling gold. However, the rise in 10-year bond yields may reflect a rise in risk premiums in a market that has become more cautious, a development that usually favours gold’s hedge status. In addition, indications of a worsening economy are being interpreted as a cue for policy makers to lower the pace of interest rate hikes.

Currencies are expected to suffer and gold prices to gain support, due to expectations of lower or delayed interest rates, especially given the growing evidence that the US economy is slowing down noticeably.

Techinical Analysis

The XAUUSD price is currently looking for a rebound around 1,915, but the technical signals are not very promising. Although the RSI is approaching oversold levels, it is yet to cross below 30, while the MACD has started a new negative cycle below zero and its red signal line. This keeps the bias on the bearish side, so a sustained decline could test the 1,900 round figure going forward. If, however, the bears achieve a close below the round figure, the focus will shift to the five-month low of 1,884.

On the upside, the bulls might struggle to surpass the 200 EMA in the 1,927 range, and if the attempt is successful, a neckline awaits near the 50.0% FR level. Overall, gold risks dropping back to the 1,900 area, however, as the technical indicators start identifying oversold conditions, a bounce to the upside can’t be ruled out either.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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