Precious Metals market

Gold has fallen sharply again today, breaking below $1900 support level. The breakdown has given rise to fresh technical selling below this level, further exacerbating the sell-off. The metal has been coming under pressure from two main sources: Strong US dollar and rising global bond yields, both find strong support on any short-term dips.

Gold was able to climb in the last two days of last week despite the US dollar and bond yields pushing higher. The precious metal gained ground on Friday as stocks reversed their earlier gains to close lower before falling further today. In other words, the metal has been supported by haven flows in the last few sessions. Gold was attempting to gain further ground today, but unsurprisingly was struggling to do so.

Gold was lower earlier, but after nearing the key $1900 level it has bounced back to turn positive. The gains are probably driven in part by short-side profit taking and after the ECB signalled it is done with rate hikes, earlier. XAUUSD was still below its 200-day average, which means it is at risk of suffering renewed falls should the US dollar extend its gains further, after rising for 8 consecutive weeks against a basket of foreign currencies.

So, the inflation battle continues for the Fed as we the latest CPI data come in stronger. This should keep the dollar supported against currencies where the central bank is expected to turn dovish. The likes of the euro and pound come to mind. Gold and possibly stocks may also struggle as the renewed surge in inflation may force the Fed to hike interest rates perhaps one more time before the end of the year.

Earlier, gold managed to recoup some of its weekly losses as it found support on the back of slight weakness for the dollar and bond yields. However, at the time of writing, it was coming noticeably off its earlier highs and threatening to turn red. It looks like the earlier recovery was driven by short-covering. Overall, the current market environment is not too supportive for gold, and not a lot has changed today.

Despite competing with the strength of the dollar, gold has been trading higher against all other major currencies since its low in August. This could suggest that gold is acting as a safe haven, even if it is not immediately obvious from the XAU/USD chart.

Gold hit its lowest level since June at just above $1900, before bouncing off its lows. The metal has been coming under pressure in recent months because of several reasons, but mainly due to long-dated bond yields remaining elevated is Europe and US, and the fact that the dollar has been trending higher in the last 4 weeks or so.

The opportunity cost of holding gold over bonds fell slightly with yields declining, brightening the gold outlook a touch.

The gold outlook has improved because of a drop in US dollar and bond yields, following the release of more disappointing US data.

While the metal may well extend its drop in the short-term, my longer-term gold outlook remains positive. I therefore envisage a rise to a new record high soon.

Today’s US inflation report could be the difference between a 25bp Fed hike or pause at their May meeting, making it a key data point to watch.

Renewed weakness in bond yields and US dollar, thanks to soft US data, has brightened the gold outlook

Falling US dollar is boosting the silver forecast, along with gold and copper. Precious metals have had a great month so far and that run could continue.

For gold to make a stronger recovery, we will have to see a surprise miss on Friday’s NFP

But will today’s FOMC minutes match the recent hawkish Fedspeak? And – more importantly for gold traders – will the dollar and yields have further to run on the Fed story?

Gold may be on the quiet side now, but it’s unlikely to remain the case if the FOMC minutes go as we suspect.

Retail sales become latest data to beat expectations, adding to sticky inflation narrative