FUNDAMENTAL
OVERVIEW
After a brief consolidation on Monday, gold fell into new lows yesterday. The
main drivers in the past few days have been Treasury yields which rose above
March’s highs, with the 30-year reaching the highest level since 2007.
Inflation worries and Fed rate hike risks intensified recently as markets started
to grow impatient amid the prolonged US-Iran stalemate and Strait of Hormuz
closure. Traders are now pricing in a 50% chance of a rate hike by year-end.
On the US-Iran front nothing has changed. Trump continues to threaten Iran
with new strikes if they don’t make a deal, while Tehran warns the US that they
have gained military knowledge from previous hostilities and that “a return to
war would feature many more surprises”.
The main problem for gold remains the Fed. Although the central bank is
still keeping an easing bias, we are now approaching a point where the Fed is
likely to drop it entirely. If nothing changes before the June meeting, we
might be in for a hawkish surprise as inflation continues to run hot and the US
data remains resilient.
In the short-term, a resolution and the reopening of the Strait will likely
support gold on falling oil prices and increased rate cut bets. But if the
Strait remains closed for longer and oil prices stay elevated, the risk of the
Fed being forced to hike anyway increases.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
Gold – daily
On the daily chart, we can
see that gold fell below the May’s low but it’s still trading in the middle of
the two key trendlines, so there’s not much we can glean from this timeframe.
We need to zoom in to see some more details.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
Gold – 4 hour
On the 4 hour chart, we can
see the price broke below the 4,500 support and extended the drop as more
sellers piled in. The natural target for the sellers should be the 4,350 level.
If we get a retest of the broken support, we can expect the sellers to step in
again with a defined risk above it to keep pushing into new lows. The buyers,
on the other hand, will look for a break higher to extend the pullback into the
downward trendline.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
Gold – 1 hour
On the 1 hour chart, we
have a minor downward trendline defining the bearish momentum on this timeframe.
The sellers will likely continue to lean on the trendline with a defined risk above
it to keep pushing into new lows, while the buyers will look for a break above
the trendline and the 4,500 resistance to position for a pullback into the next
trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the FOMC
meeting minutes. Tomorrow, we get the latest US Jobless Claims figures and the
US Flash PMIs.
