Gold rises on the back of weaker dollar

طلا rebounded from its year-to-date lows, rising to the $1670 level following the retreat of the dollar after the latest round of US employment data posted the uptick of the unemployment rate to 3.7%, exceeding estimates. In this report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a فنی analysis.

Fed delivers jumbo rate hike

The Fed as widely anticipated delivered its fourth straight 75 basis points rate hike last week, raising the federal funds rate to 4%, as inflationary pressures remain persistently elevated within the US economy. The market responded favourably at the announcement with stock markets rallying, as the result was practically priced in, however they quickly reversed course as soon as Fed Chair Powell’s hawkish rhetoric was once again on display. In its accompanied (کاهش برنامه های تسهیل کمی) the FOMC acknowledged the widespread concerns that the pace of rate hikes can severely damage the economy which could trigger a recession, stating that it will take into account the cumulative tightening of its monetary policy. As Fed Chair Powell took the podium, he practically eliminated any hopes for a pivot, deeming it premature for the time being and cited there will be ongoing rate hikes until rates are sufficiently restrictive. He explicitly stated that the central bank prefers to over-tighten rather than under-tighten since doing too little now can increase the odds of inflation becoming deeply entrenched within the economy for prolonged periods of time, causing more pain to consumers. Furthermore, the terminal rate of 4.5% proposed in the latest dot plot graph in September, has been revised upwards by 0.5% reaching 5% at the foreseeable end of the cycle. On another note, last Friday’s better than expected non-farm payrolls figure reassured the market that the US economy is still capable of creating new jobs amidst challenging times, however, what was disconcerting from the employment report was the unexpected rise of the unemployment rate to the 3.7% compared to the 3.5% expectation, signaling that the central banks’ overtightening efforts may have started to cause trouble in the US labour market. Overall, the rate remains rather low compared to historical standards, signaling tightness within the US jobs market, but nonetheless, the metric will be watched closely for any further deterioration in future employment report releases, not only by the market but also by the Fed since it falls under the scope of its dual mandate obligations. The uptick of the unemployment rate caused the dollar to retreat while we saw the precious gain support.

US inflation print expected on Thursday

The US inflation report is due out this Thursday and market participants will be looking for a status update on the damaging inflationary pressures that continue to diminish consumers purchasing power. According to estimates, the month-on-month CPI rate for October is expected to rise to 0.6% compared to the 0.4% reported last month and should the actual figure meet expectations, the uptick of inflationary pressures on a monthly basis could reassert the Fed to continue down its aggressive monetary policy tightening agenda and we may see another supersized 75-basis points hike in the December meeting, lifting the federal funds rate to 4.75%. On the slip side however, the year-on-year CPI rate for October, is expected to ease to 8.0% compared to the 8.2% reading of September. Should the actual rate meet the expectations, with the yearly inflationary metric pointing to an easing of inflationary pressures, could lead the Fed to opt for a smaller 50 basis points rate hike in December. All things considered however, the projected yearly CPI rate of 8.0% still sits well above the 2% inflation target set as a benchmark from the central bank, thus may bear less weight in the equation. Should on the other hand, Currently the FFF imply a 63% probability for in favor for a 50-basis points rate hike in the upcoming meeting, but it should be noted nonetheless that the Fed will have to grapple with new incoming data in regards to employment, growth و consumption, leading to the December meeting which their results can alter the projections significantly. In our assessment, gold continues to be disproportionately predisposed towards the downside on a fundamental level, as the dollar maintains a steady flow of safe haven inflows amidst a grim global economic outlook.

FOMC speakers set to deliver speeches

The scheduled speeches from Fed envoys will receive significant attention this week, given the lack of high impact financial releases, besides the inflation print and jobless claims, as the market will be actively seeking for any deviations from the main narrative. Hence, we would also like to highlight the upcoming speeches of Richmond Fed President Barkin tomorrow, Dallas Fed President Logan, Philadelphia Fed President Harker, Kansas City Fed President George and Fed Board Governor Waller on Thursday the 10  and New York President Williams on Friday the 11 , all of which can provide valuable insights as to what the central banks’ interest rate trajectory plans will be. Should the speeches contain dovish hints, diverging from Fed Chair Powell’s hawkish script, we may see the dollar weaken و gold receiving support due to their inherent negative correlation.

Finally, even though gold is considered to be a safe bet during times of economic uncertainty, interest rate hikes increase the opportunity cost of holding the bullion. In our assessment gold will continue to be driven by sentiment in the dollar as well as yields in the short term and odds for gold raising to previous high levels dimmish, given the current state of things.

تجزیه و تحلیل فنی

XAUUSD H4 Chart

Looking at XAU/USD 4-hour chart we observe the rise of gold’s price near the 1680 (R1) resistance level last Friday and the failed attempt to break above the long-term descending trendline initiated on the 15  of June. We hold a bullish outlook bias given the recent move however we must note the recent stalling of gold’s price near the $1670 level could be signaling the bulls are running out of power. Supporting our case is the RSI indicator below our 4-hour chart which points to a reading of 65 implying bullish tendencies surrounding the pair. Should the bulls remain in control, we may see the price action breaking definitively above the 1680 (R1) resistance level and the long-term descending trendline and head to the 1700 (R2) resistance barrier. Should on the other hand the bears take initiative over the direction of the precious we may see the price action retreating و breaking below the 1640 (S1) support level.

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