Next Gold Move
This chart of the USDX index shows an important breakout is afoot. If this breakout proves valid and continues ahead, it may present some challenges for XAUUSD by means of key resistance near 4240/45. Any decline below 4165/70 is likely to find subsequent support around 4115/20. Nonetheless, the DXY chart below may not only suggest selling pressure will re-emerge --likely near 4240, but could re-intensify selling towards a break of 4100. Im such intermarket tehnical dynamics, such bullishness in DXY could mean repeated failed buying for XAUUSD, rather than outright violent sell-offs in the yellow metal.
Wednesday's FOMC release of the dot plot and Warsh press conference pushed bond market to price rate higher probabilities for a 25-bp rate hike in September and a full chance of a similar rate hike in October. Note how the white and green graphs have moved from below zero (yellow circle) to above above zero, shifting from rate cut to rate hike expectations. The green graphs shows 0.86%, implying an 86% probability of a quarter point hike in September, accompanied by a rise in DXY and decline in gold. The 2nd chart highlights the importance of the June 15th gap, whose floor stands at 4245/6, presenting a solid short-term support, which held successfully yesterday.
Read More...Gold resumes its inverted relationship with oil. Rising oil forces oil importing countries to sell some of their gold reserves to cover oil costs (Turkey, Bolivia, Ghana, Uzbekistan). Rising oil leads to higher inflation, eliminating the need for the Fed to cut rates, which is not a positive outcome for gold and silver. If inflation rises but the Fed continues to signal at cutting interest rates (or to not raise rates), then this will be seen as causing more inflation. In this case, the bond market will "raise" interest rates via higher yields. Higher bond yields are seen negative for gold and silver. Especially if yields rise faster than inflation That is why it is important to understand what Kevin Warsh, the new head of the federal Reserve will say about inflation and interest rates on Wednesday. If he proves to be dovish -- and bond markets do not believe him, then we could see a selloff in bonds i.e. a rise in bond yields.
