Gold firming at daily support

The Gold Price fall was capped by falling US Treasury yields amidst a risk-on market mood. US Treasury yields dropped from three-year highs and undermined the US dollar. Bulls start to engage at the start of a demand area, eyes on daily M-formation.

Gold Price is higher in the US session, trading at $1,955 and near the highs of the day after traveling from a low of $1,939.40. The US dollar has come under pressure which has enabled the gold price to stabilize in what can be considered to be the start of a demand area on the daily chart. DXY is down today by some 0.67% following four straight down days. The low has been 100.220 so far, some way off the new cycle high near 101.035 printed yesterday.

US yields are moving into a corrective phase across the rates markets. The US 10-year yield traded at a new cycle high at 2.981% today before reversing lower to 2.819% currently. However, some analysts believe it remains on track to test the October 2018 high near 3.26%.

As a result, the real 10-year yield has fallen to -0.07% today from zero yesterday, the highest since March 2020. However, they expect real yields to move back into positive territory. The broad-based drop in US yields has taken a toll on the dollar today but these are seen as corrective moves before we get another leg higher.

The Fed releases its Beige Book report for the upcoming May 3-4 FOMC meeting in being released on Wednesday and would be expected to underpin the notion of a hawkish Federal Reserve since the previous Beige Book report for March 15-16 FOMC meeting, data have continued to run hot. This report will likely highlight inflation readings that have picked up further, job growth that remains robust, and wage pressures that continue to pick up.

Fed speaking continued on Wednesday. Charles Evans, the President of the Fed in Chicago, who has been 3 for 3, hitting newswires in the week, commented that inflation would not fall back to 2.0% in 2023. Those comments added to Tuesday’s when he pushed back a 75 bps increase proposed by the St. Louis Fed President Bullard.

Some Fed officials are sounding a bit more cautious, the analysts at BBH argued. For instance, they cited comments from Evans who also noted there is considerable uncertainty over how inflation will play out and so this argues for a more cautious monetary policy path this year. The analysts also explained that Fed’s Raphael Bostic said it is important to get to a neutral Fed Funds rate “in an expeditious way” and added that neutral is likely between 2.0-2.5%.

Bostic added that he would like the Fed Funds rate around 1.75% by year-end. While not exactly dovish, these two make for a more cautious stance that stands in stark contrast with Bullard.

Looking ahead, Fed chair Powell takes part in an IMF panel tomorrow with ECB President Lagarde on the global economy. This will be the last we here from him until his post-decision press conference on the afternoon of May 4. It is worth noting also that at midnight Friday, the media blackout ahead of the FOMC meeting takes effect and there will be no Fed speakers the rate decision has been announced.

Eyes on Ukraine crisis
Aside from this, news headlines around the Ukraine-Russia conflict continue flowing. Talks between Ukraine-Russia appear at a dead end, as the latter ramped up its offensive in east Ukraine, while NATO countries, led by the US, continue sending weaponry to Ukraine.

Also, noteworthy, the M-formation, which is a reversion pattern, has presented itself as a target for the bulls. The neckline meets the 38.2% and 50% ratios where resistance would be expected.
For the M-formation to play out, the bulls will note the meanwhile resistance on the hourly chart near $1,960. However, above here, the bulls will on track for the neckline near $1,973. Beyond there, a break of the April 18 highs near $2,000 will be on the cards.