Gold is still trading at its worst level in more than a month after its meteoric rise. This is with the Federal Reserve’s promise of higher interest rates for a longer period. Investors turned to the extreme bearish trend on the precious metal. The price of XAU/USD gold fell to the support level of $ 1721 an ounce, which is stable around it in the beginning of trading today, Wednesday. The question now is: Will gold now be in a permanent downtrend for the rest of 2022?
Gold XAU/USD has been trading sideways over the past week, leaving its 2022-to-date low at around 4.5%. Silver, the sister commodity to gold, kept its decline below $18. The price of the white metal fell more than 2% last week, officially sending silver prices into a 21% bear market. Gold, like other assets, has been falling since Federal Reserve Chairman Jerome Powell emphasized in his Jackson Hole economic seminar speech that the central bank would raise US interest rates as high as possible to curb inflation. This forced investors to price a 75 basis point rate cut at the FOMC's September meeting.
The metals market is sensitive to a higher rate environment because it raises the opportunity cost of holding non-yielding bullion. Gold is a traditional safe-haven asset, investors fear that precious metals do not generate a return.
Other factors affecting the gold market
The Treasury market was mostly in the red, with the benchmark 10-year yield dropping 1.7 basis points to 3.093%. One-year yields rose 3.7 basis points to 3.451%, while 30-year yields fell 2.1 basis points to 3.227%. The difference between the two-year and ten-year returns was -36 basis points.
The price of gold was also hit on the back of the dollar's strength. The US Dollar Index (DXY), which measures the US currency against a basket of currencies, rose more than 13% to nearly 109.00. The strongest bearish price is for dollar-denominated commodities because it makes it more expensive for foreign investors to buy.
US stock indices fell for the third day in a row as new data indicated the elasticity of demand for employment and households, confirming the Fed's determination to continue the fight against inflation. Commodities from oil to copper sank as the dollar rose. The S&P 500 and Nasdaq 100 ended the session at their lowest levels in a month. On Tuesday, Treasuries closed mixed after an unexpected rebound in August in US consumer confidence pushed swap rates toward pricing in another three-quarters of a percentage point increase for the September Federal Reserve meeting.
Three regional Fed chairs, in separate comments on Tuesday, reiterated President Jerome Powell's determination to bring down US inflation. A reading on job opportunities on Tuesday added to signs that the US labor market remains tight and wage pressures persist. Jobless claims will be released on Thursday before the August payroll report on Friday.
XAU/USD Gold Price Forecast Today:
There is no doubt that the recent move in the price of XAU/USD pushed the technical indicators according to the performance on the daily chart below to oversold levels.
- The most appropriate buying levels may be waiting for the rebound and correction to the highest levels of 1705 and 1680 dollars, respectively.
- The bulls will not regain control of the trend without moving the gold price towards the psychological resistance level of 1800 dollars an ounce again.
The price of gold will be affected today by the level of the US dollar and the extent to which investors take risks or not, as well as the reaction from the results of economic data from China, the euro area and the United States.
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