U.S. Jobless Claims In Focus!
Gold dropped more than 1% on Wednesday and extended its losses amid the comeback in the U.S. dollar and the U.S. Treasury yields after the release of inflation data. The rising prices of the dollar and U.S Treasury yields reduced the appetite for non-yielding bullion and dragged it on the downside. The U.S. Dollar Index (DXY) that measures the greenback's value against the basket of six major currencies, rebounded on Wednesday and jumped to $90.79. The U.S. Treasury yield on benchmark 10-year note extended its bullish momentum and rose for the 5th consecutive session to reach 1.695%.
Both the U.S. dollar and yields rose on the back of stronger-than-expected highly awaited inflation data released on Wednesday. Logically, gold should have rallied after the higher inflation data due to its status as a store of value and hedge against inflation. But market participants were highly anticipating it already, and the rising bond yields made it difficult for gold to attract investment due to its non-yielding status. At 17:30 GMT, the Consumer Price Index in April rose to 0.8% from the expectations of 0.2% and supported the U.S. dollar. In April, the Core CPI also surged to 0.9% from the forecasted 0.3% and supported the U.S. dollar.
The rising numbers of inflation raised hopes that the Federal Reserve will be now forced to hike interest rates earlier than expected in 2023. These hopes pushed U.S. Treasury yields higher on board and supported the greenback that ultimately weighed on yellow metal prices.
These hopes for an interest rate hike sooner than expected were downplayed by the Federal Reserve, Richard Clarida, on Wednesday. Clarida affirmed the comments made by Jerome Powell that higher U.S. inflationary signals were temporary and did not require a rate hike.
He said that it was not yet the time to pull back on support for the economy, though he also added that the Fed would not hesitate to use tools if the risk of persistent upward drift in inflation emerged.
Furthermore, according to the Atlanta Federal Reserve Bank President Raphael Bostic, the U.S. economy was in a transitional period. It has reopened from the pandemic, and the inflation was likely to remain volatile, and workers were closely considering their options. Bostic said that both demand and supply of workers, goods, and services were unsettled now, and hence, a lot of volatility in prices and pricing will be seen in the coming months.
The comments from Fed officials added further strength to the U.S. dollar and weighed heavily on the prices of yellow metal on Wednesday.
Meanwhile, the risk-off market sentiment emerged late Wednesday after the fears of war escalated between Israel and Gaza. Israel military and Palestinian militants in the Gaza strip exchanged fires and escalated the fears of full-scale war. Israel carried out hundreds of airstrikes on Gaza, destroyed three tower blocks, and killed senior Hamas officials. In response to this, Palestinian militants fired more than 1000 rockets into Israel. The UN feared that the rising tensions between countries might start a full-scale war, which raised the need for a safe-haven appeal that capped further losses in gold prices on Wednesday.
Gold Intraday Technical Level
Pivot Point: 1832.22
Gold - XAU/USD - Technical Outlook
Gold is trading bearish at 1,819, having violated a narrow trading range of 250 pips. Gold has broken the trading range of 1,846 - 1,820. On the daily timeframe, gold is heading lower to complete 38.2% Fibonacci retracement at 1,814 level, and violation of this opens up additional room for retracement until 61.8% level of 1,799. On the 4 hour timeframe, gold has crossed below 20 periods EMA which demonstrates bearish bias in gold. The leading indicators such as RSI and MACD are neutral, such as the RSI value has dropped below 50, and the MACD is still above 0. This indicates indecision among traders. Later today, the focus will stay on the U.S. Jobless Claims data as it has the potential to drive volatility in the gold market. All the best!
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