Weekly Market Analysis / 25 - 29 October 2021

Gold drop below $1,780 an ominous sign ahead of Fed

Gold managed to build on the previous week’s gains and climbed to $1,810 on Monday but staged a deep correction on Tuesday with investors refraining from committing to large positions ahead of key events. After fluctuating in a relatively tight range near $1,800, XAU/USD spiked to $1,810, once again, on Thursday but ended up closing the week in the negative territory below $1,780 following Friday’s plunge.

  • Gold fell more than 1% on the last day of the month.

  • Dollar selloff after disappointing Q3 GDP data remained short-lived.

  • Bears look to $1,770 and $1,750 as next targets.

What Happened Last Week

  1. Falling US Treasury bond yields helped XAU/USD preserve its bullish momentum at the start of the week. Although the benchmark 10-year US T-bond yield continued to push lower on Tuesday and Wednesday.

  2. The data from the US showed on Wednesday that Durable Goods Orders declined by 0.4% on a monthly basis in October. This reading came in better than the market expectation for a decline of 1.1% but failed to trigger a noticeable market reaction. 

  3. On Thursday, the US Bureau of Economic Analysis (BEA) announced that the Real Gross Domestic Product (GDP) expanded at an annual rate of 2% in the third quarter. With this print falling short of analysts’ estimate for a growth of 2.7%, the dollar came under heavy selling pressure. Moreover, the weekly report published by the US Department of Labor revealed that there were 281,000 initial claims for unemployment benefits during the week ending October 23. Hence, the dollar selloff softened heading into the last day of the week and XAU/USD retreated to $1,800 area.

News to Follow

  1. The ISM Manufacturing PMI will be featured in the US economic docket on Monday. Ahead of the highly-anticipated FOMC meeting later in the week, an upbeat PMI print could help investors forget the disappointing GDP report and boost the dollar. On the other hand, a dismal PMI survey could force participants to stay on the sidelines while they try to figure out whether the Fed will wait until December before starting to reduce asset purchases.

  2. On Thursday, the Bank of England will announce its Interest Rate Decision. Although this event is unlikely to have a direct impact on gold, it could affect the dollar’s market valuation and ramp up the market volatility. 

  3. Finally, the US Bureau of Labor Statistics will release the October jobs report. The market consensus points to an increase of 425,000 in Nonfarm Payrolls following the disappointing print of 194,000 in September. Following the FOMC meeting, however, the labour market data is unlikely to alter the market theme by itself. Nevertheless, a strong NFP figure could still support the greenback and vice versa.

Short-Term Outlook

  • The initial hurdle is located at $1,795 ahead of $1,810.

  • Below $1,770 could open the door for additional losses toward $1,750 below $1,730.