Bearish Setup in Gold As It Closes Below $1,900 for the First Time Since March

Gold prices have been experiencing a decline since the middle of last month as the US dollar returned following a bearish trend since last October. This has been driven by several factors, including a decrease in inflationary pressures and the anticipation of the FED maintaining higher interest rates for an extended period. Yesterday we heard rumours that they may hold rates at current rates until April next year.

As a result of these factors, real yields, which take inflation into account, have continued to rise, which has helped the USD, while everything else has been going down, including Gold. In Fact, Gold has been showing even more weakness than other assets.

On Wednesday, we got to see the  FOMC minutes from the last meeting reaffirmed a hawkish stance, with some FOMC members expressing a willingness to consider future increases in interest rates if deemed necessary. The prevailing narrative at the moment seems to be the expectation of a prolonged period of higher interest rates, commonly referred to as a ‘higher for longer’ cycle. This sentiment has contributed to a further increase in US Treasury yields, which closed near October highs this week, although they did retreat on Friday.

Until early May Gold was quite bullish, attacking the all time high at $2.075 for the third time, but buyers failed once again and the price has been making lower highs since then, which is a bearish sign. In early July we saw an attempt to reverse the decline, but the price formed a couple of doji candlesticks at the top which are bearish reversing signals, and the reversal followed, with three weekly bearish candlesticks, which paint a dim picture for XAU/USD. On Friday Gold buyers tried the upside as US bond yields retreated, but after all , Gold ended up down and closed below $1,900. So, it seems like there’s no escape for Gold and we might see new lows soon.

Gold Live Chart