November 30, 2023

Firmer yields pressure XAU/USD towards $1,800 ahead of US ISM PMI

Gold (XAU/USD) keeps Fed Minutes-led losses, despite recently making rounds to $1,810 during the early Asian session on Thursday.

The yellow metal dropped around $20 after the Federal Open Market Committee (FOMC) Meeting Minutes conveyed hawkish bias of the policymakers, suggesting a faster rate-hike and plans to discuss balance-sheet normalization.

Following the Minutes, the US bond yields rally and the Fed interest rate futures point at the 80% chance of a hike in March 2022.

Given the strong US ADP Employment Change for December, 807K versus 400K expected, statements from the Fed Minutes like, “conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continues” also propelled the US bond coupons.

In addition to the Fed-linked chatters and market reaction, fears of the South African covid variant, Omicron, also weighed on the market’s risk appetite, as well as the gold prices. Although global policymakers tried not to scream on record covid infections, by citing scientific studies terming Omicron as a mild covid strain, findings of another virus variant and strain on multiple medical systems highlighted the COVID-19 woes. It’s worth noting that the virus cases are doubling faster and the fresh virus version, founded by France, is said to spread more widely than Omicron.

Elsewhere, China’s Evergrande and geopolitical tension surrounding Russia, Ukraine and Kazakhstan also challenge the gold buyers.

As a result, the US 10-year Treasury yields jumped to the highest level since April 2021 by the end of Wednesday’s North American session, up 3.4 basis points (bps) to 1.70%, which in turn drowned the Wall Street benchmark. Though, the recent pause in the US bond yields allowed S&P 500 Futures to print mild gains around 4,700.

Moving on, monthly prints of the US Good Trade Balance and ISM Services PMI for December, as well as weekly prints of US Jobless Claims, will be crucial for the gold prices. Should the US statistics keep beating the cautious forecasts, the odds of the faster Fed rate hikes can’t be ignored, which in turn will lure gold sellers. However, Friday’s US Nonfarm Payrolls (NFP) is the key.

Read: US December Nonfarm Payrolls Preview: Analyzing gold’s reaction to NFP surprises

Technical analysis

Gold eases inside a three-week-old ascending trend channel, backed by RSI retreat. Even so, the quote’s sustained trading above 100-SMA challenges the short-term bears.

On the contrary, multiple hurdles to the north stay ready to challenge gold bulls.

Among them, 61.8% Fibonacci retracement (Fibo.) of mid-November to December downside, around $1,830, act as an immediate resistance before the tops marked in July and September of 2021, close to $1,834.

Additionally, the upper line of the stated channel, near $1,838 at the latest, also challenges gold’s run-up before directing the buyers towards the mid-November swing low near $1,850.

On the flip side, a convergence of the channel’s support line and 100-SMA, close to $1,800, becomes the key support, a break of which will recall gold sellers targeting $1,780 and $1,760 levels.

Overall, gold remains in an upward trajectory but the bulls have a bumpy road ahead.

Gold: Four-hour chart

Trend: Pullback expected


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