Gold Weekly Forecast: Flight to Safety May Prompt Bullish Continuation

August 10, 2023 5:35 PM +07:00

GOLD WEEKLY FORECAST: BULLISH

Debt ceiling pause, Powell talks down rate hikes and Yellen reignites bank jitters
Enhanced uncertainty around the debt ceiling and bank concerns may prompt another flight to safety (gold) as rate hike odds have ease
Short-term reversal hints at a continuation of longer-term bullish continuation
The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Fundamental Analysis

The US Dollar rallied against its major counterparts this past week. In fact, the DXY Dollar Index rose about 1.9% over the past 2 weeks. That is the best 10-day period for the world’s reserve currency since the middle of September. Let us take a closer look at what happened to the US Dollar and why there could be more strength in store ahead.

For one thing, the US Dollar’s ascent has been met with a similar uptake in front-end Treasury Yields. That is a sign that financial markets are slowly pricing out near-term rate cuts from the Federal Reserve, which were aggressively priced ever since the collapse of Silicon Valley Bank (SVB) triggered liquidity and recessionary concerns.

In recent weeks, ebbing financial market volatility, sticky underlying US inflation and what appears to be a still-tight labor market underscored economic resilience amidst the most aggressive monetary tightening cycle in decades. Meanwhile, during a speech on Friday, Fed Chair Jerome Powell confirmed that interest rates might not have to rise as far given recent credit stress.

That said, he noted that he did not yet decide about future tightening and highlighted that the market rate path is much different from the central bank’s forecast. As such, markets are only pricing in about a 25% chance of another rate hike in June. As usual, incoming economic data will continue deciding the fate of monetary policy.

The US Dollar will be closely eyeing the PCE Core Deflator on Friday, due at 12:30 GMT. The Fed’s preferred inflation gauge is expected to remain unchanged at 4.6% y/y in April. That is not a good sign from the perspective of the central bank. Initial jobless claims will be another interesting print, due at the same time but on Thursday. There may yet be more room to cool near-term rate-cut bets, offering support for the US Dollar.