Fears of Elizabeth Truss’s economic plan in the UK that can stretch Britain’s finances to the limit, caused the pound to drop sharply and helped the safe-haven US dollar to a new two-decade peak against a basket of major currencies. This sharply increases the US dollar value to a new 20-year high at the beginning of the week near 114.70. During the European season it lost momentum a little bit, however again started to raise, after testing a daily low of around 113.
bears have overall market control under the 1,700 level
With the USD price change, gold reacts directly. Last week, gold fell below $1,681 per ounce and closed near $1,643 per ounce on Friday. And the beginning of the week, the shock caused by the USD value sent the gold price to the lowest level since April 2020 near 1,626 US dollars.
If gold prices continue to decline, support may be found at the 2020 low near $1,441 per ounce. Resistance may be around 1,740 per ounce and higher at $1,765 per ounce. This pressure on the yellow metal price can stay held there, as long as US bond yields also diminish the appeal of gold. US Treasury yields soared again this week, with the 10-year US treasury yields touching 3.83%, which is the highest value since 2011, and the 2-year bond yields near 4.3% for the first time since 2007.
While major central banks are trying to pay more interest and planning to pay even more to be able to control the current high inflation, assets yielding interest become a more attractive investment compared to gold as interest rates rise. After the latest rate hike by major central banks, last week Federal Reserve Chair Jerome Powel raised expectations for future rate hikes, emphasizing that the Fed is committed to curbing inflation even at the expense of economic growth and pains for US citizens. In mid-term, eyes will be on ECB. ECB president Mrs. Lagarde will speak twice this week and should be watched closely, and the ECB meeting on October 10, will be very important for gold investors. In the last meeting, ECB performed its largest ever rate hike by 75 basis points which pushed the gold prices down. ECB officials hint at another steep rate hike at the ECB’s next meeting in October.
On the other hand, as we know, gold plays the safe-haven role as well, for which requests are expected to increase. While pressure increases on the stock markets, gold can also be an option to invest in when you can not trust stock prices. At the same time, with recent nuclear threats and cut-off energy exports by Russia market risk increasing, so gold’s safe haven can be considered again.
In short, gold may not be favored by investors in the first step, but the risks in the financial markets will also prevent it from falling sharply.
From the technical point of view also bears have overall market control. The downward trend below 1,700 dollars is more intense and only if it returns above this level, we can comment on the bullish points.