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Asset Watch

Is gold in trouble?

 

Thursday, August 4, 2022

Bearish sentiment was prevalent on Wall Street thanks to risk assets taking a breather on Aug. 2.
Plus, with Fed officials pouring cold water on investors’ rate cut expectations, could the developments spell trouble for gold?
On Aug. 2 San Francisco Fed President Mary Daly said, we’re “nowhere near almost done.” When asked about the futures market pricing in rate cuts in 2023, she responded, “I don’t know where they find that in the data. To me, that would not be my model outlook.”

Likewise, on Aug. 2 Cleveland Fed President Loretta Mester said “We have more work to do because we have not seen that turn in inflation. It’s got to be a sustained several months of evidence that inflation has first peaked – we haven’t even seen that yet – and that it’s moving down.”

 

Fed officials are signalling that more rate hikes are on the horizon, so the liquidity drain is bearish for gold. The yellow metal also confronts a challenging technical backdrop. For example, gold futures rallied above $1.800 intraday on Aug. 2. However, a sell-off materialised soon after, with the yellow metal falling below its January and May lows and its 50-day moving average (which ended the rally in June). Resistance also materialised soon after gold surpassed its declining resistance line drawn from the March highs.

 

Therefore, with the bears unwilling to let gold close above these key levels, is a close below $1,750 more likely than one above $1,800?


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