Gold plummeted by $60, approaching the 1800 mark! (with trading strategy)

Gold prices hovered near a more than one-month low on Thursday as the dollar and U.S. Treasury yields jumped after Federal Reserve officials projected interest rate hikes sooner than expected.

Spot gold was slightly up 0.6% to $1821.88 per ounce as of 11:50(GMT+8) in early Asian trade.

The dollar index jumped to its highest level in two months against its rivals, making gold more expensive for holders of other currencies.

The benchmark 10-year yield rose to its highest level since June 4 at 1.594%, increasing the opportunity cost of holding non-interest bearing gold.

The Fed on Wednesday began closing the door on its pandemic-driven monetary policy as officials projected an accelerated timetable for interest rate increases, opened talks on how to end crisis-era bond-buying and said the 15-month-old health emergency was no longer a core constraint on U.S. commerce.

Futures on the federal funds rate, which track short-term interest rate expectations, raised bets that the U.S. central bank will tighten monetary policy in early 2023 after Fed projections showed at least two rate increases that year.

Higher interest rates will dull gold’s appeal as they translate into a higher opportunity cost of holding it.

“Gold was crushed overnight by a more hawkish Fed. It has staged a modest recovery in Asia but the rally looks more like speculative dip buying and fast money short-covering, than a vote of confidence in the yellow metal,” said Jeffrey Halley, senior market analyst at OANDA.

“The recovery in gold should be approached with caution as we have yet to see how a change in tone from the Fed will fully play out in markets. Gold’s daily close below $1,797.50 will signal a deeper correction is in prospect.”

“Bargain hunting, safe haven demand and buying the dips emerged as gold fell to $1,804, although the change in Fed’s script had benefited the dollar and Treasury yields rather than precious metals in the immediate term,” Avtar Sandu, senior commodities manager at Phillip Futures, said in a note.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.1% to 1,045.78 tonnes on Wednesday.

Inflation expectations in Britain are well anchored around the Bank of England’s target of 2%, finance minister Rishi Sunak said after data showed inflation broke above the target for the first time in nearly two years.

OCBC sees gold price falling to $1,500

More gold bears are venturing out of the woods as the precious metal has been unable to hold gains above $1,900 an ounce.

Singapore's OCBC Bank is the latest institution to come out with a negative price forecast for the precious metal. The analysts said that the gold price peaked as they expected real bond yields to rise as inflation concerns started to diminish.

"The shift downward in both nominal yields (as a result of the soft US labour market) and breakeven yields (due to falling inflation expectations) mean real yields are likely to continue trading within range for now," the analysts said. "Our rates strategist expects that US real yields may find a bottom at -1.0% in the near term and slowly rise towards -0.6% by end-2021. This suggests that gold, which typically moves in opposite correlation to real yields, may have found a top at its current level of $1900."

The comments come as gold prices test critical support. August gold futures last traded at $1,861.2 an ounce, down 0.25% on the day. gold has been unable to attract consistent bullish momentum even as real long-term yields average negative 25 basis points, the lowest point since mid-February.

Looking to the end of the year, the analysts expect prices to hold around $1,800 an ounce. However, they are extremely bearish on gold for 2022.

"Our estimation of gold's terminal steady state remains at $1500, which we think the precious metal may retrace by the end of 2022," the analysts said.

UK reports 9,055 new cases

The UK has reported 9,055 new COVID cases, the highest daily total since February.

There were also a further nine coronavirus-related deaths in the latest 24-hour period, according to the latest government data.

British Prime Minister Boris Johnson confirmed Monday (Jun 14) that the next planned relaxation of coronavirus restrictions in England will be delayed by four weeks, until Jul 19, as a result of the spread of the Delta variant.

Despite concerns about the Delta variant, the UK's vaccine rollout has won plaudits as one of the world's speediest and most coherent. As of Monday, around 62 per cent of the British population had received one shot, while about 45 per cent had got two jabs.

Trading strategy (Source: Trading Central)

1815.60 is our pivot point.

Our preference: short term rebound towards 1845.30.

Alternative scenario: below 1815.60, expect 1804.50 and 1797.90.

Comment: the RSI is below 50. The MACD is above its signal line and negative. The configuration is mixed. Gold (CME) (Q1) is trading under both its 20 and 50 period moving average (respectively at 1829.70 and 1847.90).

Supports and resistances:

1858.50 **

1851.90 *

1845.30 **

1838.70

1824.40 last

1819.90

1815.60 **

Guideline for Trading Central strategy

Trend chart reading guideline

1. First look at the time period in the upper left corner of the chart：

‧30MIN and 1H chart shows the trading suggestions for intraday

‧Daily chart shows the market trend analysis in next 2-3 days

2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.

3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is  MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators:  Blue line is RSI, Red line is 9MA;

4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.

How to use TC strategy？

1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 

2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.

3. [Alternative scenario] is the plan B for your reference. 

4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 

5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.