Since last week’s update, gold’s price remained relatively stable, maintaining a possibly wait-and-see position. In today’s update we are to have a look at the market’s expectations for the Fed’s intentions, geopolitics that could affect gold’s price and whether gold’s negative correlation with the USD is active or not. We are to conclude the report with a technical analysis of gold’s daily chart.
- Starting with the market’s expectations about the Fed’s intentions, we note a shift towards more dovish expectations on behalf of the market. It’s characteristic that currently Fed Fund Futures (FFF) imply a probability of 67% for the bank to cut rates by 25basis points in the December meeting. FFF imply highlight the shift in the market’s expectations as last week the expectations were for the bank to remain on hold. The release of the Fed’s October meeting minutes seemed to underscore the Fed’s doubts for the necessity of further cuts in the December meeting. Yet signals from Fed policymakers remain mixed. We note that NY Fed President Williams stated that the Fed still has room to “adjust rates further in the near term”, in a clear innuendo of a possible rate cut in December. Yet Williams is a well known dove, so the comment did come as a surprise. On the other hand the bank’s hawks seem to be holding the ground. Gold’s price failed to react to the news, as the Fed’s meeting is to be on the 10th of December, yet should we see a more one sided approach from Fed policymakers, we may see some tendencies intensifying. A possible hawkish shift could weigh on gold’s price, while a dovish shift could support gold’s price.
- On second note the USD over the past week, moved higher over the past week while gold’s price remained relatively stable. Hence one cannot claim that the negative correlation of gold’s price with the course of the greenback has been reactivated. Furthermore we note that US yields dropped over the past week both for short term and longer term bonds. Yet gold failed to benefit from the drop of US bond yields as it did not seem to attract safe haven investments. Hence we also see the negative correlation between US bond yields and gold’s price as currently being inactive.
Last but not least we note geopolitical issues that could affect gold’s price. The tensions between Venezuela and the US are high as is the probability of some sort of operation on behalf of the US in an effort to destabilise or even topple the current Venezuelan government. We note that the US now designated Venezuela’s President Maduro as member of a foreign terrorist organization, a designation that the Venezuelan government has rejected characterising it as ridiculous. Nevertheless, the situation is tense and the possibility of a military operation tends to hang as like the Damoclean sword over the markets.
Should we see US military operations taking place in Venezuela we may see gold’s price getting some safe haven in flows. On the flip side the effort by the Trump administration for a ceasefire in Ukraine, seems to have failed as the Ukrainian Government and Europeans do not seem to accept it. Nevertheless should signals for a possible ceasefire in Ukraine intensify over the coming week, we may se gold’s price losing some ground.
Gold technical analysis
Gold’s price remained relatively stable over the past week, staying well within the boundaries set by the 4130 (R1) resistance line and the 4000 (S1) support level. We maintain a bias for the precious metal’s sideways direction to be maintained and note that the RSI indicator is running along the reading of 50 implying a rather indecisive market.
Also, the Bollinger bands have narrowed implying lower volatility for the bullion’s price which could allow the sideways motion to be maintained. Should the bulls take over we may see gold’s price breaking the 4130 (R1) resistance line and start aiming for the 4240 (R2) resistance level. Should the bears take over, we may see gold’s price breaking the 4000 (S1) support line and start aiming for the 3890 (S2) support base.
XAU/USD Daily Chart
- Support: 4000 (S1), 3890 (S2), 3720 (S3)
- Resistance: 4130 (R1), 4240 (R2), 4375 (R3)