Gold Price Futures (GC) Technical Analysis – Dollar Benefitting from Higher Yields, Safe-Haven Buying

Gold futures are inching higher on Tuesday as Treasury yields dipped and traders took profits in the US Dollar Index after it edged above its July 14 high. It’s probably just a minor indication of fewer sellers and a little more buyers, but I don’t see it as precursor to a trend changing event given the plethora of bearish news.

And what are the bearish developments weighing on gold prices? Currently, it’s expectations of an aggressive interest rate hike by the Fed in September and a stronger U.S. Dollar that is not only an attractive investment because of the higher Treasury yields, but also a desirable safe-haven asset because of global recession fears.

At 08:49 GMT, the December Comex gold futures contract is trading $1755.00, up $6.60 or +0.38%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $161.63, down $1.09 or -0.67%.

Fed Rate Hike Expectations and Powell’s Speech Driving the Price Action

Gold is trading near a 1-month low as the strong U.S. Dollar dampened its appeal to foreign traders of dollar-denominated bullion. Higher rates have also weighed on the non-yielding asset. And conditions could worsen for gold if the market is correct in its prediction of a super-sized rate hike in September.

Gold traders are worried about lower prices as evidenced by heightened levels in the CBOE gold volatility index and the jump in downside protection via put options.

Fear of an aggressive rate hike has driven gold from $1824.50 to $1740.20 in just eight trading sessions. But a hawkish speech from Fed Chair Jerome Powell on Friday at the Jackson Hole Symposium could deliver the blow that drives gold prices below its March 30, 2021 main bottom at $1694.50. And it’s the breaking of this level that will put the April 1, 2020 main bottom at $1618.00 on the radar.

Short-Term Outlook Will Remain Bearish if Powell Talks Rate Hikes and Recession

Powell will address a crowd of central bankers in a highly anticipated speech that could signal how high U.S. borrowing costs may go.

The biggest concern for gold traders is that Powell not only delivers a hawkish message but also issues a recession warning. This would give investors two reasons to buy the U.S. Dollar. Some will buy the greenback because they are chasing the yields. Some will be attracted to its safe-haven appeal.

Whatever the reasons, gold would likely get hit hard by new shorting pressure and long-liquidation, setting the table for a likely plunge through the $1700 barrier.