Gold | XAU/USD Fundamental Analysis Post Asia Open
The precious metal is being weighed down by the historical inverse correlations between gold and the USD and US Treasury rates. Since late April 2021, the Dollar Index (DXY) has maintained a strong negative connection with gold, while bond yields have shown a change of heart (notice that correlation does not imply causation!). Fundamentally, we may see a rebound in gold as the delta variant continues to plague most of the developing globe, as well as many major financial and logistical centers, as shown by China's recent port closure and Australia and New Zealand's 'zero tolerance' attitude to COVID-19. Since the selloff two weeks before, gold's safe-haven appeal has aided prices in maintaining a head above critical levels. The FOMC minutes released last Wednesday provided market participants with some indication that QE reduction will commence before the end of 2021. In 2013, taper discussion resulted in higher Treasury rates, which weighed heavily on gold prices. The Fed has taken a more cautious approach this time around, since markets were largely indifferent to last week's meeting.
Many people are confusing tapering with tightening, which is incorrect, since tapering merely refers to a slowdown of asset purchases, not a rise in short- to medium-term interest rates. As a result, the present low interest rate environment will persist for an extended period, providing a medium-term background for gold's durability. Regrettably, taper talk, better US economic statistics, and geopolitical concerns all work in favor of the US dollar — which may spell trouble for spot gold. The schedule for the next week is dominated by Thursday's Jackson Hole Economic Symposium, as well as a few high-impact dollar-related events - positive data prints will almost certainly have a negative effect on spot gold. On the daily chart, significant Fibonacci levels have been challenged, with the 61.8 percent level at 1689.66 serving as horizontal support. The present consolidation, as shown by this week's cluster of tiny daily candles, reflects bulls and bears' uncertainty as they await directional stimulation. This sideways movement may create a bull flag pattern, with the upside potential coming from a closure above trendline support (black) and towards the psychological level of 1800.00.
Many people are confusing tapering with tightening, which is incorrect, since tapering merely refers to a slowdown of asset purchases, not a rise in short- to medium-term interest rates. As a result, the present low interest rate environment will persist for an extended period, providing a medium-term background for gold's durability. Regrettably, taper talk, better US economic statistics, and geopolitical concerns all work in favor of the US dollar — which may spell trouble for spot gold. The schedule for the next week is dominated by Thursday's Jackson Hole Economic Symposium, as well as a few high-impact dollar-related events - positive data prints will almost certainly have a negative effect on spot gold. On the daily chart, significant Fibonacci levels have been challenged, with the 61.8 percent level at 1689.66 serving as horizontal support. The present consolidation, as shown by this week's cluster of tiny daily candles, reflects bulls and bears' uncertainty as they await directional stimulation. This sideways movement may create a bull flag pattern, with the upside potential coming from a closure above trendline support (black) and towards the psychological level of 1800.00.
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