Gold Under Pressure On US Dollar’s Correction

Gold prices are under pressure. The precious metal is actually forced back into the neutral zone on the daily chart. The hourly charts show that the price is balanced at a critical stage. Investors are eying Friday’s PCE and next week’s Fed.

The price of gold has been pressured on Thursday on the resurging US dollar that is correcting hard from a key daily supporting trendline.

At the time of writing, gold is trading at $1,658 and down some 0.4% on the day. Gold has travelled between a high of $1,670.84 to a low of $1,654.89 so far., crucially failing to hold above a key resistance level on the daily chart.

The dollar index regained ground to above 110, boosted from the lowest level in over a month from both a technical basis in a move that started to show up on the charts ahead of key growth data from the US economy and the ECB’s meeting.

Gross Domestic Product data for the US has shown that the US economy is faring better than expected. It grew an annualized 2.6% on quarter in the three months to September of 2022, more than market expectations of 2.4% and rebounding from a contraction in the first half of the year. This has ended two straight quarterly decreases in output, which had raised concerns that the economy was in recession.

The ECB raised all of its key policy rates by 75bp. The main refinancing rate is now at 2.0%. ”That is a level some officials at the ECB think approximates with longer-run neutrality, assuming inflation over time will return to 2.0%,” analysts at ANZ Bank argued. ”But inflation is miles from that currently and further rate rises will be warranted. We are currently forecasting an additional 150bp of hikes. We think the ECB may dial down to 50bp hikes from December.”

Lagarde’s gloomy outlook for the economy has boosted an appetite for the US dollar as being regarded as the cleanest shirt in the laundry basket of currencies. The data and ECB falls ahead of tomorrow’s PCE and next week’s Federal Reserve meeting whereby the central bank is expected to raise rates at its Nov. 1-2 meeting by 75 basis points to 1.5%, a 13-year high. It is also likely to reel in a key subsidy to commercial banks.

There was a technical bounce in the US dollar following its slide in recent days as investors started to cheer signs that the US Federal Reserve is considering slowing down its aggressive rate hikes in December:

Gold has failed to get above a key resistance area on the daily chart of $1,668 where it needs to close on a daily basis to instill confidence in the upside prospects.

$1,675 the high was achieved on Wednesday as the US dollar continued to slide, but the close of $1,665 was less than convincing and has consequently led to a drop back inside of the range. Nevertheless, the daily chart, above, still shows a number of bullish confluences. We have seen the break of the daily structure back on Oct 3. This led to the yellow metal being forced onto the back side of the daily trendline resistance.