FED policies, the Housing Market, and gold
For the first week in the past five weeks, gold closed higher. Last week while the US dollar index closed lower for the first week in six, yellow metal gained more than 2%. After completing lower in the previous week, the US dollar index, today on the first day of the week, continued its downtrend by another 0.6%. Two weeks ago, DXY tested above the 105 mark, the highest since 20000. Despite all the reductions, it is still trading above 100 Mark, and as long as it's above this level, bulls will be in the spotlight.
Besides the US dollar, which usually moves in the opposite direction to gold, we have US bond yields also to watch. In the last weeks, 10-year yields were increasing and even tested 3.2% as market participants were counting on a faster rate hike even with 0.75% in Jun and July meetings, which Fed chair Powell repeatedly denied, and after that, yields started falling. Unlike today's a bit raise, the yield on the benchmark US 10-year Treasury note has moved down to 2.79% on Friday. Higher yields always are negative for the Gold price, and now, while yields are decreasing, we can see bulls have more motions in the gold chart.
As we are entering a hectic week, gold is expected to have a volatile movement.
In the long term, things are a bit different. We know that FED has no other way but to move towards stricter policies. Stock investors would not welcome these contractionary monetary policies. On the other hand, since higher rates will increase house prices, it is also likely to see a slightly more prolonged recession in the housing market.
We usually look at the stock markets as an investment to increase capital. At the same time, House is primarily a consumer investment for a more comfortable life and not necessarily to raise wealth. Real estate also could be an investment market. However, roughly 65% of occupied housing units are owner-occupied and not an ancillary investment. The housing prices have grown a lot in the last two years, compared with usual rates, which brought more investment and people into this market. It simply means that any recession, especially with bad memories of the 2008/09 financial crisis caused by the housing market, can flow the money towards safe-havens, including gold.
On the other hand, FOMC members are also aware of the consequences of stricter policies on a more significant percentage of the country's population. Therefore they would be more cautious about any decision.
And in conclusion, since we are waiting for a bit more bears in the stock markets and a downturn (Not ultimately recession) in the housing market, bulls in the gold charts have more reason to appear. However, our experience from previous economic crises and cycles tells us that these predicted movements in these markets should not be aggressive.
Technically, yellow metal with a return above its 20-DMA now has 1,892 USD as the first resistance. However, the higher number will appear only if we can see the stable movement above 61.8% of its Fibonacci levels from the latest wave. On a larger view, as long as it moves above 1.780, we can say that gold has a bullish tendency.
