XAU/USD Pares Back, Focus on Fed Speakers Ahead of CPI

GOLD TALKING POINTS

• Gold follows Fed pricing.
• Fed speakers lay the foundation before important CPI report.

XAU/USD FUNDAMENTAL BACKDROP

Gold is trading lower on Monday after Friday’s response to U.S. Non-Farm Payroll (NFP) data had markets pricing in a less aggressive Federal Reserve. Despite the fact that money markets show an increase in the terminal rate to 5.1% in June of 2023 (up from 5%), the path to get there has been restrained following guidance from Fed Chair Jerome Powell.

FED INTEREST RATE PROBABILITIES

Source: Refinitiv

Leading up to the U.S. inflation print on Wednesday, Fed speakers dominate headlines beginning with the Fed’s Collins who last Friday, mentioned the need to curb inflation despite promising signs in certain areas.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

Looking at 10-year real rates (see below), they are showing signs of slowing around the 4.15% mark. The traditional inverse relationship between gold and real rates may give hope to some gold bulls but much relies on the inflation read later this week. While headline has been declining, core inflation (the Fed’s preferred measure) has pushed higher in the last two months. Both releases are expected to coming in softer for October and could provide gold with upside support should this hold true.

U.S. 10-YEAR REAL YIELD

Source: Refinitiv

TECHNICAL ANALYSIS

GOLD PRICE WEEKLY CHART

Chart prepared by Warren Venketas, IG

Price action on the long-term weekly chart keeps gold trading within the down trending channel (blue) but below the 200-day SMA (grey). This week’s candle close is key for forward guidance with a close above the 1682.29 (38.2% Fibonacci) resistance handle opening up subsequent resistance zones. The Relative Strength Index (RSI) remains near oversold territory suggesting limited upside for the yellow metal.

Resistance levels:

Support levels:

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are currently distinctly LONG on gold, with 75% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term upside bias.

Contact and followWarrenon Twitter:@WVenketas