Hi traders! My name is Davidson and I’m a market analyst for PU Prime. We are a broker that places heavy emphasis on forex education - and not just telling people what pips and spreads are.
We’re excited to be part of the FF community and share our research as well as discuss any market updates.
In this thread, we’ll be posting longer-term outlooks and in-depth fundamental analysis that we feel is lacking in much of the forex-trading research out there. Please feel free to ask any questions and participate in discussion here. We believe that understanding the fundamentals can take trading to the next level, far beyond just looking at technical analysis.
Some caveats, disclaimers, and ground rules: 
Gold_, H4: The gold market is showing significant signs of weakness, notably with the breakout below a robust double top pattern. This development follows a series of hawkish indications from the Federal Reserve, leading to the formation of the double top signal. Once this pattern was breached, it triggered an aggressive selloff in the gold market.
Resistance level: 1860.00, 1885.00
Support level: 1845.00, 1820.00
Key Fundamentals:
FOMC Meeting Sparks Market Reaction
The catalyst for this downward spiral was the Federal Open Market Committee (FOMC) meeting. During this meeting, the Federal Reserve chose to maintain its existing interest rates, holding the Fed funds rate within the targeted range of 5.25% to 5.50%.
Notably, this range marks the highest interest rates seen in over two decades. However, it's important to note that this decision had largely been anticipated by market participants, as it had been factored into their expectations well in advance. What truly set the market abuzz were the post-meeting pronouncements by the FOMC.
The Monetary Policy Committee (MPC) of the Federal Reserve reaffirmed its unwavering commitment to a series of forthcoming rate hikes, coupled with optimistic revisions in US economic growth projections. These developments reverberated through the financial markets, casting a looming cloud of uncertainty over the future trajectory of gold prices.
Diagram 1.0: US 10-Year Treasury Yields
Following the Federal Reserve's interest rate decisions, institutional investors have begun bracing for a more assertive tightening monetary policy cycle, leading to a surge in US 10-Year Treasury yields not witnessed since 2007. Rising yields are attracting investors to the US, diminishing the appeal of non-yield assets like gold.
Outlook and Recommendations:
With the gold market's limited inherent fundamentals, our analysis revolves around the intricate relationship between the US Dollar, US Treasury yields, and gold. A key aspect of this analysis involves decoding how shifts in the US Dollar's trajectory provide valuable insights into the dynamics of gold's price movements. In this context, we closely examine expectations surrounding the US Dollar and US Treasury yields, as these serve as pivotal indicators guiding our assessment of gold's direction and trends.
Traditional Finance vs Current Finance
While traditional financial theory suggests that low inflation could trigger a selloff in inflation-hedging commodities like gold, the current environment is heavily influenced by the strength of the US Dollar and US Treasury yields. Lower inflation could potentially lead to a dip in US Treasury yields and the US Dollar, causing gold prices to rebound, contrary to traditional expectations.
Diagram 2.0 vividly displays a positive correlation between the US Dollar and US Treasury yields. When Treasury yields climb, the US Dollar tends to strengthen. Conversely, Diagram 3.0 illustrates the inverse correlation between the US Dollar and gold. As the Dollar gains strength, gold prices often retreat, and vice versa.
Diagram 2.0: Relationship between US Treasury yield and the US Dollar (Positive Correlation)
Diagram 3.0: Relationship between US Dollar and Gold (Negative correlation)
Diagram 4.0: US Inflation
Recent data in the United States shows signs of easing inflation, potentially reshaping monetary policy. This could lead to a pause in the Federal Reserve's tightening cycle and temper expectations of further rate hikes.
The Fed's preferred gauge of underlying inflation recorded its slowest monthly increase since late 2020, while the core personal consumption expenditures price index rose by a modest 0.10%, below expectations of 0.20%. These developments could pressure US Treasury yields and the Dollar, potentially sparking a gold price rebound.
However, these indicators alone may not trigger a significant gold rally, given lingering hawkish expectations from the Federal Reserve. Investors should maintain a comprehensive outlook and monitor influential factors, including the Chinese property crisis, the Russia-Ukraine conflict, and US political uncertainties. These, alongside inflation data, will guide trading decisions in the coming weeks.
In the week ahead, several crucial jobs data from the United States should be fully eye on. Economists are expecting the ADP and Nonfarm Payroll economic data to come in lower than previous reading, indicating a more pessimistic outlook in the United States. However, it is worth mentioning that uncertainties remain ahead of the release of the economic data, investors are advised to be aware of high volatilities in the market.
We’re excited to be part of the FF community and share our research as well as discuss any market updates.
In this thread, we’ll be posting longer-term outlooks and in-depth fundamental analysis that we feel is lacking in much of the forex-trading research out there. Please feel free to ask any questions and participate in discussion here. We believe that understanding the fundamentals can take trading to the next level, far beyond just looking at technical analysis.
Some caveats, disclaimers, and ground rules:
- This is not in any way to be construed as investment advice
- This is longer-term analysis that might not be suitable for scalpers or even day traders. We are looking at the wider global macroeconomic environment, beyond trading economic calendar releases.
- This thread is for discussions about the analysis at hand ONLY. Please get in touch with your account manager for any administrative queries
Please keep all discussions civil!
Gold’s Recent Bearishness Indicative of a Larger Trend?
Executive Summary:
In the past week, the gold market experienced a significant decline of over 800 pips, driven by a complex interplay of influential factors. Foremost among these is the growing anticipation of imminent interest rate hikes by the Federal Reserve, creating uncertainty and prompting investors to reassess their positions in gold. This trend has been further compounded by the steady ascent of US Treasury yields, making non-interest-bearing assets like gold less attractive by comparison. In this report, we conduct a comprehensive analysis of the recent movement in the gold market, providing insights to enhance traders' perspectives and expectations for the precious metal's future prospects.
Key Events: A Bigger Drop?
Gold_, H4: The gold market is showing significant signs of weakness, notably with the breakout below a robust double top pattern. This development follows a series of hawkish indications from the Federal Reserve, leading to the formation of the double top signal. Once this pattern was breached, it triggered an aggressive selloff in the gold market.
Resistance level: 1860.00, 1885.00
Support level: 1845.00, 1820.00
Key Fundamentals:
FOMC Meeting Sparks Market Reaction
The catalyst for this downward spiral was the Federal Open Market Committee (FOMC) meeting. During this meeting, the Federal Reserve chose to maintain its existing interest rates, holding the Fed funds rate within the targeted range of 5.25% to 5.50%.
Notably, this range marks the highest interest rates seen in over two decades. However, it's important to note that this decision had largely been anticipated by market participants, as it had been factored into their expectations well in advance. What truly set the market abuzz were the post-meeting pronouncements by the FOMC.
The Monetary Policy Committee (MPC) of the Federal Reserve reaffirmed its unwavering commitment to a series of forthcoming rate hikes, coupled with optimistic revisions in US economic growth projections. These developments reverberated through the financial markets, casting a looming cloud of uncertainty over the future trajectory of gold prices.
Diagram 1.0: US 10-Year Treasury Yields
Following the Federal Reserve's interest rate decisions, institutional investors have begun bracing for a more assertive tightening monetary policy cycle, leading to a surge in US 10-Year Treasury yields not witnessed since 2007. Rising yields are attracting investors to the US, diminishing the appeal of non-yield assets like gold.
Outlook and Recommendations:
With the gold market's limited inherent fundamentals, our analysis revolves around the intricate relationship between the US Dollar, US Treasury yields, and gold. A key aspect of this analysis involves decoding how shifts in the US Dollar's trajectory provide valuable insights into the dynamics of gold's price movements. In this context, we closely examine expectations surrounding the US Dollar and US Treasury yields, as these serve as pivotal indicators guiding our assessment of gold's direction and trends.
Traditional Finance vs Current Finance
While traditional financial theory suggests that low inflation could trigger a selloff in inflation-hedging commodities like gold, the current environment is heavily influenced by the strength of the US Dollar and US Treasury yields. Lower inflation could potentially lead to a dip in US Treasury yields and the US Dollar, causing gold prices to rebound, contrary to traditional expectations.
Diagram 2.0 vividly displays a positive correlation between the US Dollar and US Treasury yields. When Treasury yields climb, the US Dollar tends to strengthen. Conversely, Diagram 3.0 illustrates the inverse correlation between the US Dollar and gold. As the Dollar gains strength, gold prices often retreat, and vice versa.
Diagram 2.0: Relationship between US Treasury yield and the US Dollar (Positive Correlation)
Diagram 3.0: Relationship between US Dollar and Gold (Negative correlation)
Diagram 4.0: US Inflation
Recent data in the United States shows signs of easing inflation, potentially reshaping monetary policy. This could lead to a pause in the Federal Reserve's tightening cycle and temper expectations of further rate hikes.
The Fed's preferred gauge of underlying inflation recorded its slowest monthly increase since late 2020, while the core personal consumption expenditures price index rose by a modest 0.10%, below expectations of 0.20%. These developments could pressure US Treasury yields and the Dollar, potentially sparking a gold price rebound.
However, these indicators alone may not trigger a significant gold rally, given lingering hawkish expectations from the Federal Reserve. Investors should maintain a comprehensive outlook and monitor influential factors, including the Chinese property crisis, the Russia-Ukraine conflict, and US political uncertainties. These, alongside inflation data, will guide trading decisions in the coming weeks.
In the week ahead, several crucial jobs data from the United States should be fully eye on. Economists are expecting the ADP and Nonfarm Payroll economic data to come in lower than previous reading, indicating a more pessimistic outlook in the United States. However, it is worth mentioning that uncertainties remain ahead of the release of the economic data, investors are advised to be aware of high volatilities in the market.
Thank you so much for the insightful post, Davidson. 
