Gold Outlook: XAUUSD Reclaims $1700 Key Level, Bearish Potential Remains Intact

[MongiIG]

• Recession Woes, Firmer US Data Underpin Hawkish Fed Bets and Strong US Dollar.
• China’s Slowdown Adds to Downside Pressure on the Precious Metal.
• XAU Traders Eye Fed speech from Brainard and Powell as Blackout Period Nears.

 

GOLD'S FUNDAMENTAL BACKDROP

Gold extended its decline in early European trade before a bounce saw it push above the key $1700 level. Yesterday we had a better-than-expected US Headline ISM Services PMI which added to an already bullish dollar driving the US dollar index to a new two-decade top above 110.50. The Asian session saw Chinese data reveal a slowdown in exports and imports for the month according to China's General Administration of Customs. This coupled with China’s covid-related woes continues to pose a threat to growth as investors fear a downturn in demand with China one of the largest gold importers in the world.

We have seen relentless US Dollar buying of late which has been a driving factor on dollar-denominated gold. This comes as market expectations have been growing for a more aggressive tightening policy from the US Federal Reserve. The current market pricing indicates over a 70% chance that the Fed will raise interest rates by 75 bps at the upcoming meeting on September 20-21. As a result, we have seen the yield on the benchmark 10-year US Treasury note surge to levels not seen since June 16this year at 3.361%.

Sentiment continues to shift as concerns remain which is evident in the generally weaker tone around equities of late. The flight to safety continues to assist gold as prices bounced back above the $1700 level today, yet any further recovery seems elusive. For any significant change to the overall downward trend, we would need a major market-moving economic release as the Federal Reserve is unlikely to retreat from its hawkish stance until it sees substantial progress on easing prices, and a US inflation update won't come until September 13.

Gold technical analysis

Full article: Sep 7, 2022 | DailyFX
Zain Vawda, Analyst