In recent days, gold has suffered the largest decline in five months, after the FOMC announced the change in monetary policy by expecting a double hike in interest rates by 2023, effectively marking the beginning of the end of the ‘era of expansionary monetary policies to revive the economy. You read it in the weekly pill by Ole Hansen Head of Commodity Strategy per BG Saxo, according to which markets were surprised by the change in Fed policy forecasts and Treasury yields which rose sharply, increasing risk and driving stocks and gold lower and sending the US dollar to skyrocket. tall.
Although no rate hike is expected before 2023, the BG Saxo report reads, the fact that the Fed suddenly signaled a willingness to consider tightening was something unprofitable investment metals considered and as a result, gold, already on the defensive afterwards. having been rejected above $ 1,900, it veered down.
Gold more sensitive to interest rates and the dollar
Gold, explains BG Saxo, remains the most sensitive commodity to interest rates and the dollar, and while the latter has reached a two-month high, it was the movements in Treasury yields that frightened the market. While acknowledging that inflation is rising, the report reads, the Fed only raised its forecasts for 2022 and 2023 by 0.1%, to 2.1% and 2.2% respectively. The firm belief that inflation will be transient helped drive a 10 basis point reduction in 10-year breakeven yields. With nominal yields increasing by 10 basis points at the same time, most of the damage was seen in real yields which jumped 20 basis points to -0.75%.
While the strength of the dollar will pose a challenge, according to BG Saxo, gold should be able to support rising yields as long as it is driven by rising inflation expectations. Once again, the million dollar question is: “Will inflation be a transient or longer lasting phenomenon?” For now, the market trusts the Federal Reserve’s judgment and until the data potentially proves them wrong, gold and with it silver, the report reads, could face another difficult period.
The signals from technical analysis
Gold, which was not trading consistently in the days leading up to the FOMC meeting, suffered a collapse due to the simultaneous movements of the dollar and yields. The break below the 200-day moving average at $ 1,838, explains BG Saxo, opened the door with $ 1,825, which offered no support before seeing two-way activity near the next key level just below $ 1,800. With the RSI approaching oversold, thus signaling that most of the capitulation sells have been made, the $ 1,798 to $ 1,770 range is an area that must hold and attract new buys to avoid a return to the double bottom. of March. Resistance at $ 1,825, followed by the aforementioned 200-day moving average at $ 1,838.