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Gold plunges but will inflation hedging provide support?

Fawad Razaqzada Fawad Razaqzada 16/09/2021
Gold plunges but will inflation hedging provide support?  Gold plunges but will inflation hedging provide support?
Gold plunges but will inflation hedging provide support? Fawad Razaqzada
Following the release of surprisingly strong US retail sales and a better-than-expected Philly Fed manufacturing index print, the US dollar and bond yields both jumped, causing gold to crater. The Precious metal broke $1780 support and that triggered technical selling as sell stops resting below were tripped.

Gold’s recent weakness is undoubtedly because of some concerns that central banks might have to start their policy normalisation processes faster than expected, because of concerns over runaway inflation. The Fed turning a bit hawkish has certainly helped to support the dollar against weaker currencies, as well as the zero-yielding precious metal.

But could the precious metal find some unexpected support here?

There are at least two reasons why gold may be able to regain its poise:
  • First, if equities drop viciously on concerns about stagflation. A potential correction in the stock market may trigger haven flows into gold, especially as prices have become cheaper while risks to the economic outlook have increased.
  • Second, investors might decide to buy gold to hedge against inflation. Undoubtedly, there is some level of inflation-hedging already going, but because bond yields are so low, the fear is that fixed income might provide better value if yields start to climb higher amid concerns about policy tightening. Even so, gold should find at least some tailwind support from this source.
Given the above considerations, I doubt the selling will continue for too long.  But before trying to pick the dip, we must see a technical reversal pattern first.

gold
Source: ThinkMarkets and TradingView.com 

At the time of writing, the metal was near its session lows, testing the next key support area between $1738 to $1750 – the upper end of this range is where gold had previously found support and resistance from while the lower marks the 61.8% Fibonacci retracement level. Could we see it stage a recovery here?
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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