Gold Price Forecast: XAUUSD struggles amid rapid rises in bond yields – Commerzbank

Gold came under considerable pressure on Monday and fell by almost 3% to around $1,820. As strategists at Commerzbank note, gold is facing headwind from the persistently firm US dollar and, above all, from the further rapid rises in bond yields. 

Fed could hike interest rates by 75 bps at its June meeting

“Yields on two-year US Treasuries have surged by around 30 basis points. Yields on ten-year US Treasuries climbed for a time above 3.4%, their highest level in more than eleven years. As a result, real interest rates have also picked up significantly and at 0.68% now find themselves at their highest level in over three years. This makes gold less attractive as a non-interest-bearing alternative investment.” 

“According to the Wall Street Journal, the US Federal Reserve will be raising interest rates by 75 basis points tomorrow, which the market immediately priced in. The market now anticipates rate hikes totalling 200 basis points by September.”

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US dollar to weaken over short-term on a 50 bps hike from the Fed – Nordea

Economists at Nordea believe the Federal Reserve will hike by 50 bps, but uncertainty is very high. If they are right, the USD could weaken in favour of other G10 currencies.

USD could strengthen on a 75 bps hike from the Fed 

“We believe the Fed will hike by 50 bps this week but we admit that the uncertainty is very high. If we are right, we will likely see the USD weaken again in favour of other G10 currencies such as EUR, NOK, SEK, DKK, etc over the short-term. 

“If we are wrong, the USD could strengthen somewhat more against the rest of G10 currencies.”

“From a technical standpoint, the USD is close to being overbought against most G10 currencies currently.”

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GBP/USD hits multi-week lows near 1.2420 pre-US CPI as UK growth fears linger

GBP/USD hit multi-week lows on Friday in the low 1.2400s, with bears eyeing a push lower into the 1.2300s.

Near-term focus is on the upcoming US CPI release and whether it will impact Fed tightening expectations.

GBP/USD broke out to fresh multi-week lows in the 1.2420 area on Friday amid mixed FX market conditions and somewhat risk-averse pre-US inflation data trading conditions. The pair was last trading with losses of roughly 0.5% on the day, with bears eyeing a push lower into the 1.2300s in the week ahead should fears about the weakening UK economy linger.

According to a REC survey cited by Reuters on Friday, UK employers hired staff at the slowest pace since early 2021 in May, with the hiring pace having now declined for a sixth successive month. Sterling also has domestic politics to worry about, with the UK government reiterating its intention to pass legislation that would unilaterally amend the Northern Ireland Protocol (putting the UK’s free trade deal with the EU at risk) and with UK PM Boris Johnson’s authority having been weakened after a no-confidence vote on Monday that saw a larger than expected rebellion from his own MPs.

In the near-term, focus will be on US Consumer Price Inflation data scheduled for 1230GMT and analysts think that the data might ease inflation worries, which could (at the margin) relieve some pressure being felt by the Fed to tighten monetary policy so quickly in the quarters ahead. This could provide GBP/USD with some short-term support. But given Fed/BoE policy divergence and a comparatively weak UK growth story, traders may be inclined to sell any sterling rallies.

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Gold Price Forecast: XAUUSD to shrug off ECB meeting 

Gold is on standby ahead of European Central Bank (ECB) meeting. Economists at Commerzbank expect the ECB decision to be ignored by the yellow metal.

Gold is popular with central banks as a safe haven and store of value

“We believe that the ECB will decide today to bring its bond purchases to an end at the start of the third quarter. In addition, it is likely to signal fairly clearly that interest rates will be raised at its next meeting in July and that the deposit rate will no longer be negative by the end of September. This would imply that the next rate hike will come in September.”

“We believe it is questionable whether any statement will be made about the longer-term interest rate outlook, as there is still a lack of consensus on this issue within the ECB Governing Council. The hawkish remarks expected from Lagarde are probably already priced in, for the most part, so under normal circumstances, we would not expect any major reaction from the gold price this afternoon.” 

“According to a survey of nearly 60 central banks conducted by the World Gold Council (WGC), about a quarter of central banks are planning to top up their gold reserves in the next twelve months. What is more, the majority of survey respondents expect the proportion of gold in the currency reserves to increase in the next few years.” 

“The WGC says that gold is popular with central banks as a safe haven and store of value. Furthermore, gold is expected to perform better in times of crisis. That said, central banks have been buying considerably less gold of late.”

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 AUD/USD remains on the defensive near 0.7200 mark, downside seems cushioned

AUD/USD came under some renewed selling pressure on Wednesday amid modest USD strength.

A goodish pickup in the US bond yields and a softer risk tone benefitted the safe-haven greenback.

A break below the 0.7150 area is needed to confirm a bearish outlook ahead of the US CPI on Friday.

The AUD/USD pair met with a fresh supply on Wednesday and erased the previous day's modest gains back closer to the 100-day SMA resistance. The pair remained on the defensive heading into the North American session and was last seen trading around the 0.7200 mark, down nearly 0.35% for the day.

A combination of factors provided a modest intraday lift to the US dollar, which, in turn, exerted some downward pressure on the AUD/USD pair. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war could push consumer prices even higher and force the Fed to tighten its monetary policy at a faster pace. This, in turn, triggered a fresh leg up in the US Treasury bond yields, which, along with a softer risk tone, offered some support to the safe-haven greenback.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, to a larger extent, overshadowed a more hawkish Reserve Bank of Australia (RBA) decision on Tuesday. It is worth recalling that the RBA raised interest rates by the most in 22 years and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July.

That said, the AUD/USD pair's inability to gain any meaningful traction and repeated failures near the 100/200-day SMA confluence suggests that the recent bounce from the YTD low has run out of steam. Traders, however, seemed reluctant to place aggressive bearish bets and preferred to wait for the US consumer inflation figures, scheduled for release on Friday. Hence, it will be prudent to wait for sustained weakness below the 0.7150 horizontal support before positioning for any further depreciating move.

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EUR/USD looks offered and drops to 3-day lows near 1.0660

EUR/USD loses further ground and revisits the 1.0660 region.

The greenback extends the bid bias despite lower yields.

Germany Construction PMI eased to 45.4 in May.

Sellers appear well in control of the sentiment around the European currency and drag EUR/USD back to the 1.0660 zone on Tuesday.

EUR/USD in multi-day lows

EUR/USD sheds ground for the third session in a row on Tuesday and pushes further south of the 1.0700 mark in the first half of the week, always in response to the selling pressure in the risk-associated universe.

Also reflecting the offered bias in the risk complex, US and German yields recede from recent tops, although they manage well to keep the trade in the upper end of the range.

In the domestic calendar, German Factory Orders contracted at a monthly 2.7% in April and the Construction PMI eased a tad to 45.4 in May. Across the Atlantic, Balance of Trade results and the Consumer Credit Change figures are due later in the NA session.

What to look for around EUR

EUR/USD continues to lose momentum and extends further the rejection from peaks beyond the 1.0700 mark in past sessions.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Construction PMI (Tuesday) – Advanced EMU Q1 GDP Growth Rate (Wednesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.09% at 1.0686 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the upside, the next resistance aligns at 1.0786 (monthly high May 30) seconded by 1.0936 (weekly high April 21) and finally 1.0945 (100-day SMA).

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Gold Price manages to hold above key support, awaits next catalyst

Gold Price is fluctuating in a tight range near $1,850 on Monday.

10-year US T-bond yield stays flat following last week's rally.

Strong near-term support seems to have formed at $1,840.

Gold Price moves sideways near $1,850 at the start of the week following the sharp drop witnessed on Friday. Trading conditions remain thin due to the Whit Monday holiday in Europe. The US economic docket will not be offering any high-impact data releases and XAUUSD is likely to continue to fluctuate between key technical levels.

Rising US yields limit gold's upside

The US Bureau of Labor Statistics announced on Friday that Nonfarm Payrolls in the US rose by 390,000 in May, surpassing the market expectation for an increase of 325,000. Further details of the report showed that the Labor Force Participation Rate improved modestly to 62.3% and the annual wage inflation edged lower to 5.2% as expected. The US Treasury bond yields shot higher on the upbeat US jobs report and forced gold to erase its weekly gains. The benchmark 10-year yield rose more than 7% last week and snapped a three-week losing streak. At the time of press, the 10-year yield was moving up and down in a narrow channel near 2.95%.

Gold Price could react to ECB, US inflation data

Later in the week, the European Central Bank (ECB) is widely expected to keep policy rates unchanged. The bank is set to hike its policy rate by 25 basis points in July with the Asset Purchase Programme (APP) coming to an end in July. According to Bloomberg, some policymakers want ECB President Christine Lagarde to deliver a convincing message that borrowing costs of vulnerable countries will be contained and fragmentation will not be allowed. A strong reaction in XAUEUR to ECB's policy announcements could impact XAUUSD's movements in the second half of the week.

The most important data release of the week will be the May inflation report from the US on Friday. The Consumer Price Index (CPI) and the Core CPI are forecast to decline to 8.2% and 5.9%, respectively, on a yearly basis. With the NFP data confirming that labor market conditions remain tight in the US, stronger-than-expected CPI figures are likely to trigger another leg higher in US yields and make it difficult for gold to find demand. On the other hand, a retreat in consumer inflation could cause investors to start pricing in a pause in Fed rate hikes in September and help XAUUSD push higher.

Ahead of the above-mentioned key events, XAUUSD could have a hard time making a decisive move in either direction. The market mood seems to have turned upbeat at the beginning of the week. In case risk flows continue to dominate the markets, the dollar could lose interest and help gold hold its ground. In that scenario, however, US yields could gain traction and not allow gold to turn north.

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