Daily Market Recap – GOLD Prices fall in the face of tapering prospects

Gold prices fell sharply last week after the Fed changed course on monetary policy. The Federal Reserve officially paved the way for a normalization of monetary policy on Wednesday by raising its rate forecast and announcing that FOMC members had begun discussing a reduction in asset purchases.

These announcements caused real rates to rebound, largely due to a lower inflation outlook. Indeed, the U.S. 10-year nominal yield remains under pressure, but the inflation outlook has increased. As a result, the real 10-year yield went from a low of -0.90% early last week to -0.75%.

Comments on Friday from the historically dovish James Bullard added to the pressure on gold after he indicated on CNBC that he was one of seven FOMC members who voted to raise rates for the first time in 2022 (versus 2023 for the median FOMC member estimate).

The next major step for the Fed will be to announce a reduction in the monthly amount of its asset purchases, currently $120 billion per month (probably in September). In the meantime, the markets' evolution should mainly depend on economic statistics, in particular on employment figures, because the faster the job market returns to its pre-crisis level, the faster the Fed should normalize its policy.

The key figures of the week will be the June flash PMIs released on Wednesday. Market participants will also be watching existing home sales on Tuesday, new home sales on Wednesday, and the U.S. core PCE index on Friday.

On the technical analysis front, gold's outlook turned bearish again early last week after it broke out of its symmetrical triangle at the bottom, and the post-Fed drop in the ounce only reinforced that outlook.

In the very short term, we can see major support at $1765 which the market is trying to bounce off of. The RSI is diverging to the upside with the price, but the momentum is still bearish (<50). If the 4-hour RSI bounces back above 50 and the Bollinger Bands break out, the outlook for gold would be bullish in the short term and a return to $1,852 would be expected.

(Chart Source: Tradingview 21.06.2021)

Conversely, if the price falls below $1,764, a further correction to the March and April lows of $1,676 would be expected.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.