Holding On To Friday’s Lows; Fedspeak In Focus

Gold sits ~$4/oz weaker at typing to print $1,835/oz, having struggled to make headway above neutral levels in fairly limited Asia-Pac dealing. The precious metal operates a little above Friday’s worst levels, with U.S. Tsy futures and U.S. e-mini equity index futures noted to have unwound their earlier risk-positive moves despite an absence of meaningful macro headline flow.

• To recap Friday’s price action, gold snapped a two-day streak of gains, closing ~$18/oz lower amidst an uptick in U.S. real yields and the USD (DXY), ultimately capping a ~$32 overall lower close for the week.
• July FOMC dated OIS now price in an ~80% chance of a 75bp hike for that meeting, with a cumulative ~196bp of tightening priced in through the remaining four meetings for calendar ‘22. Relatively hawkish comments from the Fed’s Waller (voter) on Saturday supporting a 75bp move in July (flagging data-dependence) helped put a cap on gold, having emphasised tolerance for economic pain to bring down higher prices.
• Keeping within the U.S., debate re: stagflation continues to simmer, with the Fed’s Mester (voter) on Sunday pointing out that recession risks are rising, while Treasury Secretary Yellen said that she expects the economy to slow. A note that both officials were clear in stating that they currently do not predict an impending recession.
• Looking ahead (and keeping in mind the U.S. Juneteenth holiday on Monday), Fed Chair Powell will testify on semi-annual monetary policy before the Senate Banking Committee on Wednesday (1430 BST), with participants likely focusing on firmer clues towards a 50bp or 75bp hike for July.
• From a technical perspective, gold remains vulnerable following the ~$50/oz lower daily close seen on Jun 13. Focus is on a potential move lower towards support at $1,787.0/oz (May 16 low), a break of which would signal a resumption of the downtrend. On the other hand, key resistance holds at around $1,889.1/oz (trendline resistance from Mar 8 high).