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Gold Price Set to Struggle Against a Backdrop of Higher US Interest Rates

Gold Price Set to Struggle Against a Backdrop of Higher US Interest Rates

Nick Cawley, Strategist

Gold Price (XAU/USD), Chart, and Analysis

  • Gold is back in a familiar range.
  • Trader net-shorts jump over the week.

How to Manage the Emotions of Trading

Gold traders are unlikely to see substantially higher prices over the coming weeks and months after the Fed ramped up its hawkish rhetoric last night, suggesting that interest rates will be raised sooner than current market expectations. The Fed also said that it may begin to shrink its balance sheet earlier than anticipated, a potentially aggressive move when the US economy is still recovering from nearly two years of covid disruptions.

Gold is likely to suffer against a background of higher interest rates as central banks around the world take measures to rein in runaway inflation. One benefit that gold may see during this period of tightening is one of a risk-off asset. Higher interest rates will cause certain asset classes to fall as higher bond yields make them less attractive, while any sharp market sell-off will see investors move into traditional risk-off assets including gold and the Swiss Franc. While gold may suffer from a higher interest rate environment in the longer term, it will still find short-term buyers in times of extreme market volatility.

Gold is now back in the middle of a familiar trading range - $1,763/$1,837/oz. - that held sway from late November last year. The precious metal is also trading just below all three simple moving averages, a negative set-up. These moving averages are tightly bunched and if price action from August and September 2021 is followed, a sharp move looks likely.

Gold (XAU/USD) Daily Price January 6, 2022

Gold Price Set to Struggle Against a Backdrop of Higher US Interest Rates

Retail trader data show 71.12% of traders are net-long with the ratio of traders long to short at 2.46 to 1. The number of traders net-long is 6.75% lower than yesterday and 5.38% lower from last week, while the number of traders net-short is 3.28% lower than yesterday and 42.49% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

Gold Price Set to Struggle Against a Backdrop of Higher US Interest Rates

What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.