Fed Instability Feeds Gold Gains

These Fed dramas combined with an expected US interest rate cut next month now have gold trading on the doorstep of the $3400 level. In early Asian trading hours on Wednesday, gold was at $3390, ahead of support at $3360, $3337, and $3300. The next immediate resistance awaits at $3401 and $3414. While gold’s outlook still looks bullish, short-term risks are still present, including any potential Russia-Ukraine peace talk progress (which could reduce demand for safe haven assets such as gold). But for now, expectations for lower US rates and Fed instability are feeding gains in the gold price.

In FX, the USD was weaker on the news regarding changes at the Fed Board, but only moderately so. The reason the Dollar held up was likely due to better-than-expected data released in the US on Tuesday, with Durable Goods orders and the consumer confidence data (i.e. CB Consumer Confidence) both showing signs of positivity for the US economy. The Dollar Index (DXY) is clinging onto the 98 handle, ahead of modest support at 98.04 and 97.80, and below resistance at 98.52. If macro data over the next few weeks does nothing to reduce expectations for a US interest rate cut next month, the Dollar may find it difficult to produce significant upside gains.

Oil started off the week in lively fashion due to lack of peace progress and attacks on Russian oil infrastructure. But this rally has faded, with attention turning to the OPEC+ meeting early next month and the possibility of increased production from the cartel. US crude has drifted back to $63.20, ahead of support at $62.55 and below resistance at $64.17. Broadly speaking, range trading between $62-$65 looks to be where oil is at right now, with a breakout beyond this likely dependant upon whether the Russia-Ukraine peace talks succeed or fail.

Equity markets will be looking squarely at Nvidia’s upcoming earnings report for cues as to whether the current bull run continues or stalls out. While there remain questions over how to best monetise AI investments for the broader economy, those at the epicentre of the industry such as Nvidia have a track record of producing bumper revenues, and investors will be looking for more of the same this time around from the tech heavyweight (Nvidia is due to release its quarterly earnings report after the US stock market close on Wednesday).

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If Nvidia’s revenue and earnings outlook remains ultra-rosy, then the US market rally may have a solid reason to continue. But any signs that the appetite for AI could be waning may see traders starting to take profit off the table. Financial markets are searching for a fresh catalyst, and Nvidia’s earnings report shapes as being a potential ‘make or break’ factor for traders once again.