Turmoil ensues in the global financial scene with rampant inflation, amplified recession fears and wide-reaching geopolitical risks, have investors scramble to reassess the future prospects of the shiny metal. Not only that, but the declaration of monkeypox as a global health emergency from WHO, stirred the waters even more and raised the inevitable question of how governments might respond towards this new threat and what implications will it have on the grander scheme of things. Having said that, in this report we aim to shed light on the current and upcoming events that are of crucial importance for the future development of the precious, as well as a technical analysis of assessing its potential short-to-medium horizon.
Gold’s price has been confined in a sideways price action for the past few sessions, slightly above the $1,700 range, possibly showcasing an absence of conviction on where it might lead to next. Traders brace themselves for tomorrows’ scheduled Fed’s interest rate hike decision and the follow-up speech by Chairman Jerome Powell, awaiting in anticipation on whether the hike will meet the 75-basis point consensus or will there be an upshot surprise of 100 basis points hike. Should the rate match the expectation we might see a rather small yet supporting reaction towards the greenback as the decision is already mostly priced in and could in turn weigh slightly on the precious. However, should the Fed’ opt for an even more aggressive hike and take the market by surprise, then we might see the dollar get a substantial boost and as consequence observe the precious retract, becoming more expensive and thus unattractive for international investors. The aggressive rate hike stance by the Fed, comes after the four-decade high of the consumer price index rate, released in June, exacerbating fears that inflation will take a toll on the consumer front and become entrenched in the economy for longer. On the flip side, should the Fed opt in for the more aggressive monetary policy tightening option in the following months, we might also see the probability of the US economy entering a recession increase to 40%, according to Reuters, thus the chances for a “soft-landing” dwindle drastically in our opinion. Another factor that might impact the shiny metal’s future outlook are the bond yields. Even though gold is considered a safe haven and a hedge against inflation, it could fall out of favor when contrasted with the US treasuries as, the precious bears no-yields. Bond yields however, and the US 10 year in particular, has been declining for the past few sessions which could provide support for gold making it a viable option for investors’ portfolios, thus increasing the demand for bullion.
Finally, we also note the upcoming financial releases for the US, namely the GDP rate figure for Q2 to be released on Thursday the 28th of July alongside with the Initial jobless claims figure for last week and on Friday the 29th of July, the Consumption rate for June and the University of Michigan’s final market sentiment report for July, all being of material importance for the dollar and as a consequence for gold’s price.
Technical Analysis
XAUUSD H4
Looking at the XAUUSD 4H chart we can observe the descending trendline initiated on the 13th of June, which highlights the lower peaks and lower troughs of the precious. However, we also observe the stalling and the confinement of the bullion’s price action between the 1716 (S1) support line and the 1736 (R1) resistance line, since the 20th of July, possibly showcasing traders’ indecision towards the shiny metal, ahead of the Fed’s rate decision tomorrow 28th of July. Thus, we hold a sideways price action bias for gold’s for the time being. Supporting our case, is the RSI indicator below the 4H chart, flat lining on the 50 level and the convergence of the price action with the 20 moving average line of the Bollinger bands. Should the bulls take over and for us to change our assessment, we would require a clear break of the 1736 (R1) resistance level, the descending trendline and a possible challenge of the 1752 (R2) resistance line. Given though the pre-mentioned downward trendline and should the bears reign over, we may see the break below the 1716 (S1) support level and the move past the 1702 (S2) support barrier. While in an extreme bearish scenario we may see golds price approaching the 1682 (S3) support hurdle. Please note that higher than usual volatility may be present for gold’s price at the time of the release of the Feds interest rate decision, hence caution is advised should gold traders be active at that time.
