GOLD - Gold Prices Rise as US Dollar and Treasury Yields Ease UpFundamental Analysis
Yesterday, Gold prices had a fantastic day (Thursday 8 june 2023), with a 1.3% increase, making it the best performance in over a month. This rise in gold coincided with a weaker US Dollar. The DXY Dollar Index dropped by 0.76%, which was its worst 24-hour performance in almost three months.
Gold is often seen as a safe haven when the value of fiat currencies weakens. Yesterday, there was also a decrease in Treasury yields, especially for longer-term maturities. The 10-year rate dropped by 2.03%, following a significant surge of 3.74% earlier in the week due to unexpected tightening measures by major central banks. This combination of a softer US Dollar and lower government bond yields created favourable conditions for gold.
In the past 24 hours, the financial markets paid close attention to the latest US initial jobless claims report. Unfortunately, the numbers were not encouraging, as jobless claims unexpectedly rose by 261,000 last week, surpassing the consensus estimate of 235,000. This increase was the highest recorded since November 2021. This report provides timely insights into the state of the US labor market.
The unexpected rise in jobless claims has tempered expectations of the Federal Reserve raising interest rates again in July. It is now anticipated that the central bank will pause its tightening measures. Although the economy has shown resilience despite concerns of a possible recession, the jobless claims report alone is unlikely to cause panic about an impending economic downturn. As a result, stock markets experienced a broad rally.
Considering these factors, gold is poised for potential further gains in the next 24 hours. Economic news is relatively quiet towards the end of the week, leaving market sentiment to determine the direction of XAU/USD, so that up move may be only temporary.
Technical Analysis
Taking a look at the daily chart (left), yesterday Gold has made a Bullish Engulfing candlestick pattern from key support at 1936, so we should expect some move up later today. That said we have relative equal low below with other liquidity key zones, so that move up will most likely be short-lived as Gold would need to come back down to those liquidity zones for a strong push to the upside.
In H4 (right), the immediate liquidity zones are much clearer (marked out with red lines), and so the current scenario highlighted with grey arrows (on both charts) would be the one that makes most sense in regards to collect relevant engineered liquidity created over past few weeks and break out of the current accumulation / range to eventually pushing up.
