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A bearish sentiment in gold market due to headwinds

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Analysis by Golden FX Link Capital business manager Chhea Chhayheng

A bearish sentiment in gold market due to headwinds

The dollar remained below its recent high on Tuesday morning in Asia, while US President Joe Biden’s investment bill suffered a blow and US equities were dragged down by concerns over the new Omicron Covid-19 variant.

However, it seems that market participants who trade and invest in gold did not share the same concerns as the US equities markets.

Market participants instead continued to focus on the Federal Reserve’s plans to accelerate the tapering timeline of their asset purchases and implement rate hikes next year.

The Fed is likely to implement three rate hikes in 2022, with an additional three the following year.

While these rate hikes will be subtle with 25 basis points (a quarter of a per cent), the moves would raise the Fed funds rate to one per cent by the end of 2023.

Precious metals markets website Kitco News said gold was facing “headwinds”.

“Currently, the gold market faces further headwinds as hedge funds increase their bearish bets in the precious metal, anticipating hawkish comments from Federal Reserve chair Jerome Powell.

“The latest trade data from the Commodity Futures Trading Commission showed that along with further long-liquidation, hedge funds are increasing their short positions in the marketplace.

“Commodity analysts at Societe Generale noted that gold led the commodities sector in a bearish sentiment.

“’Gold experienced a $3.1 billion bearish flow, mostly on short building,’ the analysts said.

“Although gold prices managed to push above $1,800 an ounce on Friday, outside the latest survey period, some market analysts saw the price action as just short-term short covering,” Kitco News reported.

For the technical part, gold prices were moving in a range of $1,760 to $1,814 per ounce four weeks in a row and creating a box market. Traders can subsequently place a sell position at a strong resistance of $1,814, and set a take-profit function at $1,785 and a stop-loss function at $1,828.

On the other hand, investors could also wait for a reverse opportunity to place a buy position at $1,765, which is a key support, with the recommended stop-loss function at $1,755 and take-profit at $1,780.

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