Has gold reached an inflection point?

Gold price analysis and news

• Gold remains despite firmer yields and USD
• Fed defends new policy

Gold remains despite firmer yields and USD

Despite a steady rise in real yields and a firmer dollar, which is typically down for the precious metal, gold prices have held up relatively well, registering a second consecutive weekly gain for the first time since December. As such, it begs the question: is gold reaching an inflection point?

Fed defends new policy

Last week, the Fed faced its first test of the credibility of its new policy (AIT), launched in August. The Federal Reserve projects that inflation will be above the 2% target, however, it continued to project interest rates remaining at the zero limit until 2023. While markets may continue to price a squeeze earlier than expected from the Fed, Governor Powell’s message was clear, they will not signal an intention to tighten policy until “real” progress is made. That said, it can be argued that it gave gold a new life.

On the other hand, the Fed said it would launch a review of the supplementary leverage index, allowing the capital rule exemption to expire on March 31.st. The SLR is a capital rule that requires banks to hold at least 5% of the capital of their total assets. Last April, the Fed exempted Treasury bills and bank reserves, allowing them to build balance sheets with the purchase of Treasury bills. As such, with the decision to allow the capital rule to expire, the view is that this could reduce banks’ demand for government bonds, as banks would have to hold more capital against Treasury bills, resulting in higher bond yields. Although this was seen in the initial reaction to the announcement, the moves were relatively harmless. However, while this poses upside risks to yields, three speeches scheduled for Jerome Powell next week are a sign that the Fed will ease uncertainties about rising yields.

In addition to the Fed Governor’s speeches, there are not a noticeable number of important data releases to expect in the coming week. In turn, the ebb and flow of the feeling of risk is likely to dictate gold, although it is important to note that we will be moving towards the end of the month, but not the authorities until next Wednesday. I suspect that there will be some interest next Friday. .

Gold levels to watch

In terms of levels to be observed, the main area at the top is 1760-65, previous support and now resistance. I have said before that the technical scenario does not change unless there is a close above this area and that remains the case today. On the negative side, the support lies in 1720 and 1690 below. A weekly close above 20DMA (1737) will be a good sign for bulls and will help pave the way for a test of the aforementioned resistance zone.

Gold Chart: Daily Period

Source: Refinitiv