Fed Beige Book Provides Support for Gold Prices

Gold analysis and talking points

• The Fed’s Beige Book report was followed by support for gold.
• Unemployment claims data and the Fed’s speakers are in focus today.
• Bearish divergence is building momentum, XAU/USD is below $2,000.

XAU/USD basic background

Gold prices rose on Thursday morning on the back of a weak US dollar. Despite hawkish comments from Fed’s Williams who pointed to the tough task ahead of deinflation as well as a strong US labor market, markets reacted to the Fed’s beige book. The Fed Beige Book is a report released 8 times annually that includes data from across the United States from bank and branch managers on economic conditions in different regions. Yesterday’s report identified the US economy fading as inflationary pressures ease and access to credit tightens. Recession fears also gained momentum which could play into bullion’s safe-haven appeal.

The report may also hint at the need for the Fed to pause its rate hike cycle after the May meeting; However, according to money market pricing (see table below), expectations remain set for another rally in June.

Federal Reserve interest rate prospects

Source: Refinitiv

After that, real yields fell in the United States due to the idea of ​​reaching an early peak in interest rates with lower yields on the 10-year and 2-year US Treasury bonds. The lower opportunity cost of holding the yellow metal makes it more attractive from an investor’s point of view.

10 year US tips – real interest rate

Source: Refinitiv

Upcoming data today includes jobless claims data (see economic calendar below) which is expected to be approximately in line with the previous week. If that pays off, I don’t see much of an impact from a market volatility perspective, but the Fed’s talk a little later could fuel the markets. This week has seen blistering talk from Fed speakers, and a continuation of this narrative could give the dollar a boost, leaving gold exposed on the downside.

Economic calendar

source: DailyFX Economic Calendar

Technical Analysis

XAU/USD daily chart

Chart created by Warren VenkitasI.G

XAU/USD daily price action although it is in the green today, is still below the psychological 2000 dollars handle. This could be the beginning of a bearish divergence that will open the way towards subsequent support areas.

resistance levels:

• 2050.00 – 2080.00
• 2032.13
• 2009.75
• 2000.00

Support levels:

Client Sense: Up

The IGCS shows that retailers are currently differentiated long on gold with 56% of traders who are currently holding long positions (as of this writing). At DailyFX we usually take the opposite view of crowd sentiment. However, due to recent changes in long and short positions, we are in for a short-term bullish trend.

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