Gold is on the verge of capitulation

The gold bulls capitulated on Monday, pushing the price back to the $1800 area. The daily charts clearly show how the momentum of gold’s rise was losing strength in the second half of the month.

We saw roughly the exact reversal in May and June when gold’s attempts to break the downtrend collided with a change in Fed rhetoric.

Gold is on the verge of capitulation - 1

Again, as earlier in the year, the reason for the sell-off in gold was heightened expectations that the Fed would be more aggressive in raising interest rates. Markets are now laying a 77% chance of a key rate hike in June 2022, compared with 61% a month ago.

For the short-term outlook for gold, the crucial area is near $1790, where the 50- and 200-day moving averages are concentrated. If touching these levels does not bring back demand for gold, we should prepare for a further sharp sell-off in the metals.

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A sharp decline in gold under these levels and a consolidation below them would risk reversing the bullish breakout of early November.

Perhaps the best indicator of gold’s prospects now is once again the performance of the dollar and the government bond market. Further increases in yields and the US currency will undermine interest in precious metals. However, it is worth noting that the dollar looks locally overbought, and rate expectations are emotionally optimistic, forming the potential for at least a local rebound.

Alex Kuptsikevich

Financial market professional with 16-years' experience and Senior financial analyst at FxPro. Author of daily reviews on the impact of economic events with comments regularly featured in top international and Russian media. Covers fundamental analysis, global markets, foreign exchange market, gold, oil, cryptocurrencies.

Alex Kuptsikevich is a regular contributor to both digital and print media including CNBC, Forbes, Reuters, MarketWatch, BBC and Coindesk.