Forex world

November 20, 2022

Gold Price Forecast: Break below key $1,750

- Gold closed lower on Friday as the dollar and bond yields rose with FOMC minutes eyed.

- A deeper correction could be in order for the open this week with $1,750 eyed as per the confluence of the 38.2% Fibonacci.

Gold is flat in the open and straddles the $1,751 level, recently pressured by the US Dollar that made its biggest weekly gain in over a month as investors eyed rising bond yields and continued to make bets on the US Federal Reserve's interest rate hiking path. 

The US Dollar index DXY, which measures the greenback against a basket of major currencies, was up 0.0.3% at 106.93  and has recovered the losses from when US inflation data triggered the index's sharpest weekly drop since March 2020. Treasury yields were up for the second day in a row on Friday with the 10-year yield yields last at 3.821%.

Earlier last week, stronger-than-expected US Retail Sales data poured cold water over speculation about easing interest rate hikes. Also, hawkish remarks from Fed officials such as James Bullard helped to thwart speculation that the Fed was nearing a pause helping to lift the US Dollar and yields. Meanwhile, Societe Generale's economist Kit Juckes wrote that "it may well be that the process of reducing positions ahead of year-end has started in earnest." He added that "2022 was a near perfect storm favoring the US Dollar, which rose on stronger growth, higher rates, terms of trade and geopolitical concerns. Liquidity conditions are deteriorating, and positions being cut back.''

For the week ahead, the Fed minutes will shed light on the FOMC's deliberations regarding the expected downshift in the pace of rate increases. ''With that said, policymakers will also emphasize that the terminal rate is likely edging higher vs prior expectations as the labor market remains overly tight. In terms of the data, we look for the mfg PMI to recede modestly, staying above the 50 level in November,'' analysts at TD Securities said. 

With respect to gold, the analysts explained ''money managers continued to aggressively increase their net length in gold markets. Considering trend following remains the dominant return engine among money managers trading in the yellow metal, as highlighted by the strong correlation between CFTC money manager positioning and our independent estimates of CTA positioning, the aggressive rise in net length is more likely attributable to weakening downside momentum signals as opposed to growing belief in the Fed pivot narrative.''

''Indeed, money managers significantly covered shorts but only modestly added to their longs. Given we have found that non-CTA money managers were also likely net short, this recently popular narrative may have also played a role in explaining the scale of short covering in this week's data,' the analysts added.'

Gold technical analysis

Support is holding in the open but remains pressured below the prior structure and on the backside of the hourly trendline that had been broken mid-week. Nevertheless, a deeper correction could be in order for the open this week with $1,750 eyed as per the confluence of the 38.2% Fibonacci. 

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