Last week, we highlighted that “dips into sub-$1700 territory in recent years have proven short-lived, suggesting that gold may not have much further left to fall”.
And sure enough, gold has mimicked such a performance in recent sessions.
Spot gold is taking advantage of the pullback in the US dollar on Friday, with the latter easing away from overbought conditions after its scorching rally for most of this week.
Still, as long as markets continue to expect more jumbo-sized Fed rate hikes in the pipeline, spot gold is set to remain capped by its 50-day simple moving average. Bullion’s year-to-date declines should remain mostly intact, as long as the Fed remains far from reaching peak hawkishness.
To the downside, the $1680-$1700 support region must continue to hold, or gold could risk tumbling down to $1600 with scant significant support levels in between.
A higher-than-expected US inflation print next week could well be another gut punch to the “dovish pivot” narrative.
That should translate into another leg higher for the US dollar and 2-year Treasury yields, while potentially extending gold’s year-to-date drop.