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Gold has started to move back towards the worst levels of the year as the US dollar index resumed its climb and hit a 20-year high, which further eroded bullion’s safe-haven appeal.
Additionally, ahead of today’s Federal Reserve interest rate decision investor bets of more aggressive rate hikes by the US central bank are piling on the pressure on commodity prices.
Investors continue to expect very aggressive Fed action on rates today, given the recent inflation data, like the recent CPI number, while the PPI index for final demand rose 0.8% in May after advancing 0.4% in April.
Expectations for a 75-basis point hike by the Fed’s jumped to 96%, according to CME’s Fed watch Tool. Such a hike would be the biggest since 1994, increasing the opportunity cost of holding non-yielding bullion.
Should the Fed follow through with 75 basis point cut we could well see gold tumbling below the $1,790 level, which could start a chain reaction of technical selling towards the $1,760 level.
Current sentiment metric towards gold show that traders are getting more bullish, and sentiment has increased about 12 percent since last week. The ActivTrader market sentiment tool shows that 65 percent of traders are bullish towards gold.
While this is sentiment bias it now overly bearish gold prices, retail is typically, in the majority, on the wrong side of the trade. Going forward really need to see a negative bias by retail to help the chances of a stronger rebound.
Gold short-term Technical Analysis
The short-term technicals for the yellow-metal shows that a double-bottom price pattern has failed, and the rejection from $1,880 is putting pressure on the historically bullish price pattern.
Looking at the well-denoted pattern on the four-hour price chart, a bearish breakout from a rising wedge is looking and the breakdown is indicating a move towards the $1,760 area.
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Gold Medium-term Technical Analysis
The daily chart shows that gold remains buy while trading above the $1,830 level, which is the location of the key 200-day moving average, which has acted as a magnet for price recently.
I expect that the price correction in gold is going to be ongoing and further losses are likely, given the fundamental and technical situation. Make no mistake, the break under $1,830 is a large worry.
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