Gold: Tentative rebound faces risks in both directions – OCBC

Gold has recovered above 4050. OCBC strategists Sim Moh Siong and Christopher Wong report that the rebound from below 4000 was supported by easing oil prices and reduced liquidation pressures, despite a stronger US Dollar (USD) and higher US yields. Attention is now turning to the FOMC and core PCE, they say. Extending the gains requires lower yields and a softer Dollar. A hawkish Fed or renewed equity deleveraging could, however, weaken the recovery.

Fed outlook and yields hold key to recovery

"Gold found better footing, recovering from another dip below 4000 to trade back above 4050 as oil prices eased modestly on renewed Middle East diplomatic efforts."

"The recovery is somewhat encouraging, particularly given the firmer USD and US Treasury yield upticks. A rebound in technology equities may also have helped ease broader liquidation pressures."

"While lower oil prices and easing liquidation pressures offer some relief, US Treasury yields remain elevated and markets continue to price a high probability of another Fed hike in December. Focus now shifts to the FOMC, where a hold is widely anticipated, but guidance on path trajectory will matter more."

"Thursday’s core PCE could either reinforce or temper the Fed’s message. Further easing in oil prices, accompanied by softer yields and USD, could help extend gold’s recovery. However, a hawkish Fed or another bout of equity deleveraging could quickly undermine the rebound. For now, we still see some 2-way risks."

"Mild bearish momentum on daily chart shows signs of fading while RSI turned higher from oversold conditions. Signs of rebound is re-emerging while we watch for signs of more durable rebound."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)