Gold, XAU/USD, Build Back Better Plan, Breakeven Rates, PCE - Talking Points
- Gold prices take a hit after President Biden’s agenda stalled out
- PCE data shifts into focus as falling breakeven rates drag gold
- Prices drop below the 200-day Simple Moving Average overnight
Gold prices fell overnight despite a risk-averse trading environment and a relatively weak US Dollar after Omicron fears resurfaced. Bullion prices have struggled below the 1800 mark this month and fell as low as 1753.10, a far cry from November when the yellow metal aimed at the 1900 level.
The Federal Reserve’s recent shift to a more hawkish outlook has the prospect of higher rates casting a bearish tone on the precious metal. Specifically, a forecasted pullback in global monetary support overall has gold traders on the back foot. The sustained rise in prices across key parts of the economy has bolstered the pace of those coming rate hikes. Last week, the Bank of England (BoE) hiked its benchmark rate to 0.25% from 0.1%, making it the first major central bank outside the APAC region to hike.
While inflation is strong, markets now appear to believe that prices will level off in the coming years. The US 2-year breakeven rate fell overnight after President Joe Biden’s social spending agenda was effectively ended by Senator Joe Manchin – a moderate who offers a vital vote for Democrats. Mr. Manchin said he will not support the Build Back Better plan (BBB) for now.
The proposed legislation may come back to life again, but for now, it appears to be effectively dead. Traders will continue to keep their ear to the ground over issues that may stoke or cull inflation in the short term. That said, if the legislation is reintroduced in the coming months, it may underpin breakeven rates and, in turn, gold prices. Goldman Sachs released a note overnight stating that the expected Q1’22 US GDP is expected at 2.0% with the removal of the BBB. That is down from 3.0%.
For now, however, bullion traders have US inflation data due out later this week in focus. The November core personal consumption expenditures price index is set to cross the wires at 4.5% y/y. A higher-than-expected figure may firm up near-term inflation expectations, which could underpin gold. But even if that does occur, don’t expect a huge turn higher in breakeven rates or gold, as the market appears rather confident in central banks at the current moment.
DailyFX Economic Calendar
XAU/USD Technical Forecast
Gold pierced back below the 200-day Simple Moving Average (SMA) in an overnight drop. The 1800 level continued to beat down intraday attempts to clear the psychologically imposing level. The path lower now looks to be the path of least resistance below the key SMA, with a possible drop to the November low at 1758.93 on the cards.
XAU/USD Daily Chart
Chart created with TradingView
--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
