Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

Is gold setting up for a rebound after Fed induced weakness?

The following looks to identify key catalysts and themes currently in play for gold, assessing whether recent decline is the start of a broader trend reversal or a knee jerk reaction.

Gold Source: Bloomberg

Federal Reserve commentary prompts dollar strength and gold weakness

The sharp rebound in gold since April this year has ended abruptly, following news from a more hawkish Federal Reserve (Fed) who now look to open discussions around tapering stimulus efforts. The Central Bank has also suggested that rates in the world’s largest economy could rise twice before the end of 2023.

While gold was rising on the increasing inflation expectations along with a softening dollar, the Fed commentary has inversed short-term movements whereby the dollar has started to strengthen once again, longer-term US treasury yields are rising and the price of gold is declining.

For now, markets are assessing whether initial movements are part of a knee jerk reaction or longer-term reversal in asset class trends. Fed actions and commentary become even more crucial for gold, with inflation data amongst the most important influencers as it guides the pace of monetary tightening now expected over the medium term.

Gold: technical analysis

Spot Gold chart Source: IG charts
Spot Gold chart Source: IG charts

The price of gold has corrected all the way back to the 1760 support level. Despite short term weakness, we do consider the medium-term trend for gold to be rangebound in nature.

The price has now formed a bullish price reversal off the 1760 support level. The price reversal is supported by an oversold signal. The reversal suggests a rebound back towards the 1820 level, our initial resistance target. A break of this level would call for a further move higher towards the 1840 resistance level.

The bullish reversal would be deemed to have failed if instead we see renewed decline and a break (close below) of the 1760 support level. In this scenario, the move lower would consider 1720 as the next support target.

IG client sentiment

IG client sentiment Soure: IG charts
IG client sentiment Soure: IG charts

As of 22 June 2021, the majority of IG clients (86%) with open positions on dollar denominated gold expect the price to rise in the near term, while 14% of clients with open positions expect the price to fall.

Summary

  • Gold has been under significant pressure in the short term having fallen nearly 150 dollars from this year’s highs
  • Short term weakness has been influenced by a more hawkish Fed who are opening discussions around tapering stimulus efforts underway
  • The fall in gold correlates to a rise in US 10-year Treasury yields and the dollar
  • Inflation data will see its importance for gold elevated in lieu of future monetary policy decisions
  • The price of gold remains in a broad trading range over the medium term
  • In the short term, the price of gold is looking oversold at support, suggesting a possible near-term rebound
  • The majority of IG clients with open positions on gold expect the price to rise in the near term

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Trade on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Tuesday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.