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29 Aug 2016

Gold inter-markets: hovering around monthly lows amid increasing prospects of a Fed rate-hike action

Having faced rejection at $1342 on Friday, Gold resumed with its near-term corrective move and dropped to monthly low level of $1315 before recovering its lost ground to currently trade around $1320 level. 

Rising greenback exerted de-facto selling pressure across dollar-denominated commodities, including gold. The US Dollar got a strong boost after hawkish comments from the Fed Chair Janet Yellen and Vice Chairman Stanley Fischer hinted towards an imminent Fed rate-hike action by the end of 2016. Increasing Fed rate-hike bets drove the USD/JPY pair higher and took along the US longer-term (30-years) Treasury bond yields higher, which dented demand for assets that don't provide any yield - like gold. 

Meanwhile, a sudden spurt in the Volatility Index (VIX), leading to weakness in the broader US equity index (S&P 500) extended some support to the safe-haven appeal of the yellow metal and restricted further downslide. However, the prevalent US Dollar strength, as depicted by bid tone surrounding the USD/JPY major, is likely to restrict any attempts of recovery in the precious metal. 

Focus now shift to Friday's monthly employment details from the US (NFP), which would be the final jobs report heading into the FOMC September monetary policy meeting. A strong NFP print will keep doors open for a September Fed rate-hike action and should continue to weigh on the yellow metal. In the meantime, bullion traders are like to derive intermediate move from broader sentiment surrounding the greenback and prevalent risk-sentiment.

From technical perspective, sustained weakness below $1315 is likely to drag the commodity below June lows support near $1305 level, towards testing 100-day SMA strong support near $1295 region. Conversely, any recovery attempts might now confront immediate strong resistance near $1330 level.

 

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