Gold’s Gain Capped by Steep Fed Rate Hike Expectations

(June 14th, 2022- James Hyerczyk)

Gold futures are steady but lower on Tuesday as the rally in the dollar took a breather, and Treasury yields dipped. Nonetheless, gains are being limited by expectations of aggressive rate hikes from the U.S. Federal Reserve.

Trader’s Pricing 75-Basis Point Rate Hike from Fed

After Friday’s surprisingly strong U.S. consumer inflation report, traders are now looking for the Fed to raise interest rates 75-basis points at the conclusion of the two-day meeting on Wednesday. According to the CME’s Fedwatch Tool, traders are expecting 75-basis point rate hikes in June and July, and a 50-basis-point rise in September.

Producer Prices Jump 10.8% in May

Wholesale prices rose at a brisk pace in May as inflation pressures mounted on the U.S. economy, the Bureau of Labor Statistics reported Tuesday.

The producer price index (PPI) a measure of the prices paid to producers of goods and services, rose 0.8% for the month and 10.8% over the past year. The monthly rise was in line with Dow Jones estimates and a doubling of the 0.4% pace in April. The Core PPI rose 0.5% on the month, slightly below the 0.6% estimate.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $1809.20 will signal a resumption of the downtrend. A move through $1882.50 will change the main trend to up.

Resistance is a series of retracement levels at $1826.60, $1837.30, $1844.00 and $1854.80. The most important price is the long-term Fibonacci level at $1844.00.

Daily Swing Chart Technical Forecast

Trader reaction to $1831.80 is likely to determine the direction of the August Comex gold futures contract on Tuesday.

Bearish Scenario

A sustained move under $1831.80 will indicate the presence of sellers. Taking out $1826.60 will indicate the selling pressure is getting stronger. This could lead to a retest of the intraday low at $1809.20.

Taking out $1809.20 could trigger an acceleration into the main bottom at $1792.00, followed by the January 28 main bottom at $1787.80.

Bullish Scenario

A sustained move over $1831.80 will signal the presence of buyers. This could lead to a labored rally because of potential resistance at $1837.30, $1844.00 and $1854.80.

Although overtaking $1844.00 will be a sign of strength, the minor 50% level at $1854.80 is the actual trigger point for an acceleration into $1882.50.