According to market analyst Ross J Burland, gold prices are consolidating after the sharp decline on the back of US power. The analyst says the dollar is drifting and lacks momentum, so eyes are scanning the forex board for clues. Meanwhile, TD Securities analysts note that gold’s wide trading range is subjecting trend followers to countless whiplash.
Covid-19 spread and Fed expectations dominate the market
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As we reported , gold prices are taking advantage of Covid-19 fears to post their biggest daily gain in a week around $1,810, up 1.22% at the time of writing. Given the rapid spread of the virus variant and immunity to vaccines, global traders have great fear of the Covid variant at a time when the Eurozone is battling the fourth wave of coronavirus. Emphasizing the same, the World Health Organization (WHO) and the UK Health Safety Agency (UKHSA) are calling for special meetings to discuss current virus challenges.
The analyst states that fears about the Fed’s monetary policy tightening at the wrong time also put pressure on risk appetite, and gold and the US dollar support safe-haven demands. However, US 10-year Treasury yields fell 6 basis points (bps) to 1.583% and pulled back from Wednesday’s monthly peak. According to the analyst, virus updates are becoming key catalysts to watch as US traders will have a smaller session after the Thanksgiving holiday and may not be able to fully respond to the risk-averse mood.
Federal Reserve is priced in for a faster rate of contraction, while the European Central Bank maintains its dovish stance by supporting the dollar amid divergence. Thursday’s ECB minutes showed that inflation is still expected to fall below 2% over the medium term. December will be an important month in this regard due to the US Consumer Price Index and central bank meetings.
Yesterday’s Fed minutes could be more effective next week as markets turn full, but they were prone to a faster tapering pace and an earlier rate hike. Next Saturday, the Fed blackout period will begin. That’s why next week’s Fed speakers will have a lot to say about the US CPI data.
Market pricing making the Fed too hawkish?
Meanwhile, analysts at TD Securities note that gold’s wide trading range exposes trend followers to countless whiplash, often accelerating buy flows near the highs of the range and sell flows near the lows of the range.
In that sense, we still don’t see a catalyst for the yellow metal to break through the trading range, given TD Securities’ forecast for slowing growth and inflation next year. This suggests that market prices for Fed hikes could ultimately be too hawkish.
Analysts, interestingly, note that the recently added Shanghai gold position remains resistant to technical failure. Analysts also point out the following for silver:
However, Shanghai silver traders continued to increase their shorts, reflecting our view of a more fragile fundamental outlook for the white metal despite the observed elasticity in price action so far.
Gold prices technical analysis: Golden bears on duty
The golden bears are in, but consolidation seems to be taking shape and there could be an upside test between now and the next critical events surrounding the Fed, according to market analyst Ross J Burland.
Analyst comments that EUR/USD (the euro is the largest component of the DXY index) is falling towards retesting the monthly counter trend line:
If this situation continues, then the dollar may enter a significant correction that is expected to support gold prices. There is still room to go until the trendline is reached, though. However, horizontal support could lead to an occasional correction in EUR/USD.