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Fed Beige Book Provides Support for Gold Prices

GOLD ANALYSIS & TALKING POINTS

  • Fed Beige Book report follow through backing gold.
  • Jobless claims data and Fed speakers in focus today.
  • Bearish divergence building momentum, XAU/USD below $2000.

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XAU/USD FUNDAMENTAL BACKDROP

Gold prices are stronger this Thursday morning on the back of a weaker US dollar. Despite hawkish commentary from the Fed’s Williams who cited the tough task lying ahead to bring down inflation as well as the robust labor market in the US, markets reacted to the Fed Beige Book. The Fed Beige Book is a report produced 8 times per year and includes data from around the US from bank and branch directors on the economic conditions in various regions. Yesterday’s report outlined a fading US economy with declining inflationary pressures and tighter credit access. Recessionary fears have also gained traction which could be playing into bullions safe-haven appeal.

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The report may also insinuate the need for the Federal Reserve to pause its interest rate hiking cycle after the May meeting; however, according to money market pricing (see table below), expectations remain set for yet another hike in June.

FEDERAL RESERVE INTEREST RATE PROBABILITIES

image1.png

Source: Refinitiv

Subsequently, US real yields have slipped on the notion of a possible earlier peak in interest rates with both the 10 and 2-year US Treasury yields down. The reduction in opportunity cost of holding the yellow metal makes it more attractive from an investor standpoint.

U.S. 10-YEAR TIPS – REAL INTEREST RATE

image2.png

Source: Refinitiv

Upcoming data today includes jobless claims data (see economic calendar below) which is expected to come roughly in line with the prior week. If this comes to fruition I don’t see much impact from a market volatility perspective but Fed speak a little later on could stoke the markets. This week has had some aggressive Fed speak from its speakers and a continuation of that narrative could give the greenback a boost, leaving gold exposed on the downside.

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ECONOMIC CALENDAR

image3.png

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

XAU/USD DAILY CHART

image4.png

Chart prepared by Warren Venketas, IG

Daily XAU/USD price action although in the green today, remains below the psychological $2000 handle. This could be the beginning of bearish divergence playing out opening up room towards subsequent support zones.

Resistance levels:

  • 2050.00 – 2080.00
  • 2032.13
  • 2009.75
  • 2000.00

Support levels:

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are currently distinctly LONG on gold, with 56% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short position we arrive at a short-term upside disposition.

Contact and followWarrenon Twitter:@WVenketas

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