- Friday’s US hot inflation reading triggered a flight to safe-haven currencies like the greenback, and precious metals fell.
- The 2s-10s US Treasury yield curve inverted during the day as a recessionary scenario looms.
- The CME FedWatch Tool shows that the odds of a 75 bps increase in the June meeting lie around 34%.
- Gold Price Forecast (XAU/USD): A daily close at around $1820 to open the door towards $1800.
Gold spot (XAU/USD) slides to a new monthly low near the $1820 figure on Monday, as US Treasury yields skyrocket, propelled by Friday’s hotter than expected US inflation numbers, ahead of the US Federal Reserve June meeting, in which investors have priced in a 50 bps increase. At the time of writing, XAU/USD is trading at $1826.60, down near 2.20%.
Pessimistic sentiment triggered a flight to safe-haven assets, except Gold
Risk-aversion dominates Monday’s session. European and US equities are plunging as a recession looms, spurred by global central banks, which forecasted inflation as transitory, falling behind the curve. Market participants are flying toward safe-haven assets, as reflected by the greenback. The US Dollar Index, a measure of the greenback’s value vs. six currencies, advances 0.80%, trading at fresh 2-decade highs around 105.027.
In the meantime, Gold remains trading heavy after reaching a daily high near $1880, weighed by higher US Treasury yields. The 10-year benchmark note rate jumped to multiyear-highs, to levels last seen in 2011, at around the 3.314% threshold, up by 15 bps.
Meanwhile, the short-end of the yield curve, the 2s-10s, inverted during the day on concerns that a higher Federal Funds Rate (FFR) might trigger a recession, as the US central bank battles inflation readings near 9%, not seen since 1981.
Elsewhere, some commercial banks around the globe begin to price in a 75 bps rate hike on Wednesday, like Barclays. However, most analysts expect the Fed to hike 50 bps as they aim to keep its credibility intact, though it could open the door for higher rate increases in July and September.
The CME FedWatcht Tool shows the odds of a 75 bps rate hike at 34.3% while fully pricing in a 50 bps increase.
With no data in the US economic docket to be released, all eyes are set on the Fed monetary policy decision and Chair Jerome Powell’s post-meeting press conference. Traders must know that the Summary of Economic Projections (SEP) will also be unveiled. Expectations are mounting that officials would update inflation estimations to the upside and growth to the downside.
Gold Price Forecast (XAU/USD): Technical outlook
XAU/USD is trading below the 200-DMA, for the second time, in the last couple of trading sessions. In fact, it also broke a 4-year-old upslope trendline that, if confirmed by a daily close, would pave the way for further losses. Therefore, in the short term, XAU/USD is headed to the downside.
Gold’s first support would be May’s 18 low at $1807.23. A breach of the latter would expose the $1800 figure, which, once cleared, could send XAU/USD tumbling towards the YTD low at $1780.18.