June 25, 2021 14:23:24
Gold has consolidated this week just above the recent lows after selling off dramatically on the hawkish Fed last week. There has been little positive reaction to the recent chorus of Fed speakers, similar to the dollar which is a key driver of the yellow metal holding its gains. Powell’s more cautious testimony on Tuesday failed to excite gold bugs which indicates potential further weakness, especially as more risky assets are shining.
Lasting elevated inflation with a cautious Fed should help prices as gold is often seen as a hedge against rising costs, but more hawkish noises and rate markets moving higher will increase the opportunity cost of holding bullion and dull its appeal.
Weekly Chart: Strong support lower down
The longer-term weekly chart shows the breakout of the descending bear channel at the beginning of May and then the failure of prices above $1900 at the end of last month. With bearish momentum so strong after last week’s sell off, it seems the direction of travel is lower into a confluence of support around $1724. This zone includes the long-term trendline from the May 2019 lows, the 100-week SMA and a prominent Fib level. Much depends on the dollar and “transitory” inflation, but if the bears break this week’s and last week’s low around $1760, a move south looks inevitable. A break of the lower support zone would then target $1617. On the flip side, a bout of risk-off is needed to attract the bulls with $1878 the next minor Fib level above.
4-Hour Chart: Waiting for the break
Zooming into the four-hour chart sees the Fed breakdown in full effect. Healthy consolidation near the lows normally heralds another move in line with the dominant trend, so watch a break of $1761 for more downside. Only a break of $1797/1800 sees the bearish momentum fade and a stronger base of support holding up prices. Positive divergence with the RSI failing to make a new low while physical prices went lower also currently warns that oversold prices may attract buyers the longer the base forms.
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