The upside in gold has been supported since Powell’s dovish tilt last Friday. Inflation
expectations kept on climbing, while Treasury yields fell into new lows.
That caused real yields to fall, giving further boost to gold prices.
Today we are seeing a stronger push to the upside although we haven’t got any meaningful catalyst. This looks more like one of those last parabolic pushes before a bigger pullback, but time will tell.
The focus is now on the US
labour market data that will culminate with the NFP report next Friday. Strong
data might take the probability for a September cut towards a 50/50 chance but
will certainly see a more hawkish repricing further down the curve and weigh on
gold.
Soft data, on the other
hand, will likely see traders increasing the dovish bets with a third cut by
year-end being priced in and giving gold another boost.
In the bigger picture, gold
should remain in an uptrend as real yields will likely continue to fall amid
Fed easing given their dovish reaction function. In the short-term though, hawkish
repricing in interest rates expectations will likely keep on triggering corrections.
On the daily chart, we can see that gold is now trading at the upper bound of the 4-month long range. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the 3,245 support. The buyers, on the other hand, will look for a break higher to increase the bullish bets into a new all-time high.
On the 1 hour chart, we can see more clearly the recent bullish trend triggered by Powell last Friday. We got a bounce on the upward trendline where buyers stepped in with a defined risk below the trendline to position for a breakout. If we were to get another pullback, we can expect the buyers to lean on the trendline again, while the sellers will look for a break lower to increase the bearish bets into the 3,245 support next.
The red lines define the average daily range for today, so even if we stay above the resistance, we might not get much follow through. Also, it’s not shown on the chart but the latest rally is diverging with momentum indicators which could be another signal of a potential pullback.
Next week is going to be big for gold as interest rates expectations will be influenced greatly by the US labour market data. A hawkish repricing is likely to weigh on gold, while an even more dovish outlook should give the precious metal a boost into a new all-time high.
This article was written by Giuseppe Dellamotta at investinglive.com.