Oversold gold may slide further on elevated yields, firmer dollar

Spot gold extended its losing streak to the fifth consecutive day Friday as the metal closed with a loss of 0.85% at $1,648.73. Gold ended the week, the month and the quarter lower.

High US yields and a strong Dollar continue to act as headwinds against the metal as investors see the US Federal Reserve sticking to its high rate regime for a duration longer than previously expected.

Spot gold was down around 4% on a weekly closing basis. The US Dollar Index was up nearly 0.55% in the week as it closed at 106.18. The ten-year US yields closed the week around at 4.578%, up 3.50%. The 2s at 5.05% were down around 2%.

The US Federal Reserve Chair Powell's preferred gauge of inflation data was released Friday. The US core PCE deflator m-o-m was noted at 0.10% as against the forecast of 0.20%, though the y-o-y core PCE deflator inflation reading at 3.90% was in line with the forecast. Previous readings stood at 0.20% and 4.30% respectively. Core monthly PCE deflator inflation readings coming in terms of 0.10% to 0.20% are encouraging as these readings will eventually bode well for annualized readings.

Meanwhile, Euro-area core inflation eased to its slowest pace in a year, as underderlying core price gain came in at 4.5% in September, which was down from 5.3% in August and trailed the 4.8 median estimate. Headline inflation cooled down to 4.3% from 5.2%, which is almost a two-year low.

ETFs backed by the metal were on track for the biggest weekly outflow since June. Blackrock Inc.’s iShares Gold Trust, liquidated 13 tons of gold this week.

The US shutdown threat looms large as Kevin McCarthy's stopgap arrangement to avert shutdown has failed to pass in the House.

US Federal Reserve speakers remain mostly hawkish. Fed's Kashkari said that he is among those who are open to more than one rate hike, whereas Williams sees the rates to be near or at the peak, though he ruled out any rate cuts soon.

Global bonds had their worst month since February on the 'higher for longer rate' narrative. High oil prices also stoke inflationary concerns.

Next week will be crucial for the markets as the US ISM manufacturing (September), ISM services (September), JOLTs job openings) August), ADP employment (September), and nonfarm payroll data (September) will be on tap. Out of European economies, Eurozone's unemployment rate, retail sales; Germany's manufacturing, services and composite PMI; and the UK'S manufacturing, services and composite PMI will be in focus. China's manufacturing and non-manufacturing PMIs along with Caixin manufacturing, services and composite PMIs will also be important for setting the tone in the financial markets.

Although the yellow metal is looking somewhat oversold presently, it may decline further on chart based weakness, elevated yields and a firmer Dollar.

Next major support is seen around $1,830/$1,810. Resistance is at $1,860/$1,885.

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