Gold Prices Drop as US Dollar Approaches Fresh 2021 High

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Gold, XAU/USD, US Dollar, Fed Bets, Jackson Hole – Talking Points

  • Gold flips lower after US Dollar energized from FOMC
  • Traders turn to Jackson Hole for further taper clues
  • XAU/USD turns lower after falling EMA pressures prices

Gold prices started to turn lower in Thursday’s Asia-Pacific session as traders across Asia digested recent market news, including the FOMC minutes. The yellow metal is down nearly 2% since the start of August, with pressure from a stronger US Dollar presenting a formidable headwind for prices. The broad-based DXY index, which tracks the Greenback versus a basket of currencies, is nearly 1.5% higher this month. Gold tends to be more expensive to hold for investors when the USD is rising.

Prices have held up better than some may have expected, given the DXY index is at a five-month-high and nearly into a fresh 2021 peak. Some weakness in Treasury yields may help explain that. A series of downbeat economic data have pushed traders to purchase US government debt. Yields fall as bond prices rise. That causes gold to become more attractive to investors, given that gold is a non-interest-bearing asset.

The downbeat US retail sales print earlier this week put a spotlight on fears that the highly transmissible Delta variant may be putting the brakes on economic growth as cases surge across portions of the country. Fed rate hike bets eased slightly on that data. However, Wednesday’s minutes of the Federal Reserve’s July meeting showed that the central bank is on track to roll back asset purchases later this year.

The FOMC minutes appears to have flipped traders bearish on XAU. Balance sheet tapering is seen as a telltale sign for an approaching rate hike. Fed members now appear in favor of reducing asset purchases, or at least talking about it. However, the next FOMC meeting is a ways off on September 21. That puts next week’s Jackson Hole event in focus when Fed Chair Jerome Powell will speak. Gold traders will key in on his commentary. Hawkish tones will likely work against gold prices.

Gold Technical Forecast

Upward momentum eased as gold prices approached the psychologically imposing 1800 level earlier this week. XAU/USD is now on the move lower, with its weekly gains in danger of turning negative. The falling 26-day Exponential Moving Average appears to have helped cap upside. With RSI turning below its neutral 50 midpoint, the path of least resistance may be skewed lower for now.

Gold Daily Chart

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Chart created with TradingView

Gold TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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