Gold trades under pressure on USD strength & Fed hike bets

Comment by James Trescothick, tixee's Global Market Analyst

LA MISERE, Seychelles, Sept. 7, 2022 /PRNewswire/ -- Gold fell for a second straight session yesterday after stronger than anticipated US ISM non-manufacturing data prompted bets of a more aggressive Federal Reserve.

US ISM non-manufacturing PMI unexpectedly rose to 56.9 in August, up from 56.7 and defying expectations of a decline to 55.5.

The service sector data rose for a second consecutive month thanks to strong order growth. Supply chain bottlenecks and price pressures also eased, suggesting that the US economy was holding up much better than initially feared and is more able to absorb more extensive rate hikes. This is bad news for non-yielding gold.

Today the precious metal continues to decline as the USD dollar, the safe haven of choice, powers higher above 110.00 to a fresh 2-decade high and as treasury yields rise.

A strong USD makes gold more expensive for overseas buyers. Given current market fundamentals, there are few signs that the relentless dollar rally will end soon, which means that Gold could struggle to trade meaningful over 1700.

US Fed speakers will be under the spotlight later today as the market watches for clues on what to expect from the September FOMC. The market is currently pricing in a 70% probability of a 75-basis point rate hike this month compared to 57% early yesterday.

Gold buyers will want to see clear signs from the Fed that the current rate hiking cycle is over before taking up large buy positions. With inflation still over 4 times the Fed's target 2% rate, that appears to be some time away.

USD bulls pausing for breath could help an intra-day bounce in gold while still keeping the downtrend intact. Although we expect any move higher to lack serious momentum.

It would take a rise above 1765 to create a higher high. Meanwhile, sellers will look for a break below 1688, the September low and 1680 the 2022 low to continue the downtrend.

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