XAU Eyes PCE After US Dollar, Treasury Yields Weigh on Price

1. XAU Eyes PCE After US Dollar,
Treasury Yields Weigh on Price

2. Points To Be Discussed Today:
• Gold Prices Fell Last Week
• Gold Prices Typically Fall
• Gold Has Been Trending Lower
• Gold Prices (XAU/USD)
• Gold Has Trended Lower After Failing To Clear
Resistance
• Gold Price Daily & Weekly Chart
• Gold Bullish
• Gold Spot / U.S. Dollar

3. Gold Prices Fell Last Week
• Gold Prices fell last week after yields rose into
the weekend after a hawkish FOMC.
• XAU/US faces a tough path ahead against
higher yields, PCE figures in focus
• Gold prices fell again last week, although the
pace of losses slowed as credit risks
broadsided markets.
• China’s Evergrande Group was the catalyst for
sending traders into safe-haven assets.

4. Investors Favored The US Dollar
• Offshore bondholders reported last week that
they failed to receive any coupon payments from
the Chinese real estate giant.
• Investors remain on edge as another round of
USD coupon payments approaches on October
11.
• Instead of gold, investors favored the US Dollar.
• Rate traders sold US government debt last week
after the Federal Reserve hinted that it
would begin tapering balance sheet growth later
this year.

5. The Fed’s Outlook
• That FOMC decision led to a steepening of the
yield curve, which suggests traders are going
along with the Fed’s outlook that rate hikes
are eventually coming on the back of stronger
economic activity and inflation.
• The CME Group’s Fed Watch Tool sees a 15.6%
chance for a 25 basis point rate hike at the
June 2022 FOMC meeting. That is up from
9.9% the week prior.

6. The Fed’s Outlook - I

7. Gold Prices Typically Fall
• A rise in Treasury yields typically hurts gold
prices as It is a non-interest-bearing asset.
• Moreover, when the yield curve rises, gold
prices typically fall – this is due to the yield
curve's predictive quality concerning rate
hikes and economic activity.
• Next week brings the Fed’s closely watched
inflation gauge, core PCE.

8. Inflation Already Well Above The
Fed’s Target
• Analysts expect the figure to cross the wires at
4.2% on a y/y basis, in line with July’s 4.2%
increase.
• A miss on the figure may see some rate hike bets
pullback, which could allow gold to rise.
• However, with inflation already well above the
Fed’s target, labor market data will offer more
relevant information around rate hike bets.
• That said, Thursday’s initial jobless claims data
will come on the radar before the September
non-farm payrolls report due out next Friday.

9. Gold Has Been Trending Lower
• Gold has been trending lower after failing to clear
resistance in the $1835 area earlier this month
• The recent sell-off accelerated after
XAU/USD broke below its 50-day SMA last week.
• The US treasury yield outlook following the
September FOMC meeting is likely to create
headwinds for non-interest bearing assets in the
near-term

10. Gold Prices (XAU/USD)
• The Federal Reserve’s hawkish dot plot, along
with its announcement that it may be
appropriate to start tapering asset purchases in
upcoming meetings this year, has created
headwinds for gold prices (XAU/USD) in the near
term.
• In the wake of the the September FOMC
meeting, US treasury rates have started to charge
higher, with the 10-year yield briefly surging to
1.45% this Friday, its highest level since the
beginning of July.

11. Gold Has Not Performed Well Of Late
• In general, rising yields can undercut
appetite for non-interest bearing assets
as it raises the opportunity cost of
holding positions that do not offer a
coupon.
• This dynamic in the bond market may be
the reason why gold has not performed
well of late.

12. Gold Has Trended Lower After Failing
To Clear Resistance
• Leaving fundamentals aside and focusing on
the technical picture, gold has trended lower
after failing to clear resistance near the $1835
area earlier this month, setting impeccable
lower highs on its way down.
• The sell-off appeared to have picked up
momentum after XAU/USD lost the $1800
psychological mark and broke below the 50-
day simple moving average last Wednesday.

13. The Daily Chart
• Looking at the daily chart, we do not appear
to have any meaningful support until the
yearly low in the $1680 area.
• This is frightening, as it means that the bears
may have little impediment to drive prices
significantly lower from current levels if
sentiment towards the precious metal
deteriorates again.

14. A Large Downside Move Materialize,
Selling Pressure
• Should a large downside move materialize,
selling pressure could begin to
ease around $1680, unless this floor is taken
out decisively.
• In which case, we could see
a retracement towards $1620, an area of
support created by an uptrend line in play
since August 2018.

15. A Bearish Bias
• On the other hand, if buyers regain control of the
market, the first resistance to watch out for
appears in the $1785/1790 region, where the 50-
day SMA aligns with the September 22 high.
• If price convincingly breaks above this area, bulls
could reassert upside pressure and drive gold
towards its 200-day SMA, followed by the
July/September high near $1835.
• However, for now and in the short term, the scale
leans towards a bearish bias.

16. Gold Prices Daily Chart

17. Gold Prices Weekly Chart

18. Gold Bullish

19. GOLD SPOT / U.S. DOLLAR

20. XAU Eyes PCE After US Dollar,
Treasury Yields Weigh on Price

21. THANKS FOR LISTENING
XAU Eyes PCE After US Dollar,
Treasury Yields Weigh on Price