Gold: Bearish Engulfing Pattern Near $2,668 Could Trigger Key Technical Reversal
LONDON (November 25) The big news in the markets has been the appointment of Scott Bessent as US Treasury Secretary by President-elect Donald Trump. Apparently, he is a measured choice, who is seen providing more stability in the US economy and financial markets than some of the other candidates that were under consideration.
As a result, we saw US index futures and European indices rise sharply at the Asian open, with bond prices also bouncing back. The news has been somewhat bearish for gold, even if it has caused the dollar index to weaken – but that’s largely due to a relief bounce in the EUR/USD exchange rate more than anything else.
Gold Eases After Near 6% Rally Last Week
Today’s 1.5% drop comes on the back of a big rally last week when gold and oil were both supported as geopolitical tensions remained in the spotlight. Last week, not only gold rise almost 6% but it completely made back the losses suffered in the prior week and some.
Still, it couldn’t rise to a near-record high as the ongoing dollar strength held back the bullish momentum. Meanwhile, investors were busy buying bitcoin, which hit repeated records as it closed in on the $100K mark, boosted by optimism that Trump’s election victory will mean crypto-friendly policies. In the FX space, the dollar remained bid, largely thanks to a weakening euro, which was hit by soft PMI data from the eurozone.
Hawkish Shift in US Rates Could Undermine Gold
The stronger US dollar hardly had any impact on gold prices last week, but historically it is one of the most important variables in determining gold’s prices. So, this is something that could ultimately undermine gold in the weeks ahead.
Another factor that could potentially impact gold negatively is the recent hawkish repricing of US interest rates. The market is no longer sure of a rate cut in December and prices in around 14 basis points of a cut only. I think the Fed may go ahead with a standard 25bp rate cut anyway before pausing the cycle into the new year.
Higher interest rate expectations and rising yields tend to hold back assets that pay no interest such as gold.
Key US Data to Come in Mid-Week Ahead of Thanksgiving
Whether or not we will see further hawkish repricing of US rates will be dependent on incoming data. The US economic calendar is quiet until the middle part of the week. Wednesday brings a slew of economic data ahead of the Thanksgiving holiday.
Investors will scrutinize the second estimate of Q3 GDP, which initially underwhelmed with a 2.8% reading. The release of core PCE, the Federal Reserve’s preferred inflation gauge, along with jobless claims, durable goods orders, pending home sales, and FOMC meeting minutes, will provide further insight into the US economy's health.
These reports could influence the markets. Stronger-than-expected US data would likely be welcomed by gold bears and dollar bulls, which could increase pressure on XAU/USD and especially the EUR/USD’s downward trend.
But if we see weak data, then that could start to see the odds of a December cut increasing again, which should be mildly positive for gold, while if the data is extremely poor, then it could also bring back into focus concerns about US stock valuations which are looking quite stretched. With investors largely absent on Friday, Wednesday's data releases could set the tone for the remainder of the week, and not just for gold.
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