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Gold Price Action Echoes Bearish Behavior as APAC Markets Fall

Gold Price Action Echoes Bearish Behavior as APAC Markets Fall

Thomas Westwater, Analyst

Gold, XAU/USD, FOMC, Economic Data, Breakeven Rates, Technical Outlook – Talking Points

  • Gold prices are slightly lower as Asia-Pacific stocks fall on Wednesday
  • Fundamental conditions bode poorly for gold as breakeven rates drop
  • XAU/USD looks ready to repeat its recent bearish price action behavior

Gold prices are modestly lower in Asia-Pacific trading despite a risk-off move in equity markets, with prices down around 0.3% after an overnight bounce that saw most of its intraday gains trimmed throughout Wall Street trading. The modest price action follows a steep drop on Monday when markets whipsawed as traders aggressively sold UK Gilts, which led global government bond yields higher.

The sideways action is not all that encouraging for Bullion bulls. It echoes patterns observed over the last six weeks: consolidation followed by a dump. XAU's primary detriment has been surging Treasury yields and a sky-high US Dollar. A Federal Reserve that is hyper-focused on cruising inflation has driven both of those to rise exponentially despite many Fed detractors.

The downward price action has matched the behavior seen among gold speculators, evidenced by the latest COT data from the CFTC. Broader deteriorations in market sentiment weighed heavily on risk assets, which would likely benefit the yellow metal were it not for the FOMC-induced bond exodus. The 2-year US breakeven rate—the gap between its nominal and inflation-indexed yields—fell to the lowest since January 2021.

That market-based inflation outlook bodes poorly for XAU, especially considering a still-hawkish Fed. Moreover, consumers are growing more optimistic about the economy amid falling gasoline prices, which bolstered the Conference Board’s Expectations Index for September. Until the FOMC capitulates, however, that won’t matter unless markets grow confident in a pivot thesis again, which would drive bond yields lower. That’s unlikely, but the personal consumption expenditures price index (PCE) due later this week may bring markets closer to that scenario.

Chart, line chart  Description automatically generated
Gold Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 11% -16% 3%
Weekly -9% -6% -8%
What does it mean for price action?
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Gold Technical Analysis

Since August, several periods of consolidation—marked by a Bear Flag, Wedge and Pennant—have formed before prices put in another leg lower. That same consolidation marking another prelude to a selloff is potentially forming now as prices hold steadily above the 1620 level this week. Should the pattern continue, the 1600 psychological level is up for a test.

XAU/USD – 4-Hour Chart

Chart  Description automatically generated

Chart created with TradingView

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--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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

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