The precious metal continues to be under pressure as the dollar soars to new highs as a response to the aggressive interest rate hiking agenda of the US Federal reserve, in an attempt to ease rogue inflation that whiplashes the economic market and as consequence puts extensive pressure on the consumer front. Gold exchange traded funds saw record outflows in the past two months as the market continues to price in the possibility of a recession and the safe haven asset falls out of favor. In this report we aim to shed light on the events of the recent past and upcoming events that are of crucial importance for the future development of the bullion, as well as a technical analysis assessing its potential short-to-medium horizon.
XAU/USD fell below $1,800 per troy ounce last week, plunging well below, closing the week near the $1,740 level once seen before at the end of September 2021. Currently gold marks its fourth consecutive month trading in the reds, since reaching the $2,000 level amidst the Russian invasion of Ukraine. Aiding to the deterioration of gold was also the piping hot inflation levels currently experienced worldwide, forcing central banks to sprint into action, attempting to contain it by tightening their monetary policies. More specifically, in Fed’s June meeting minutes, it was stated that FOMC will continue to march aggressively towards a 75-basis point rate hike at their next meeting. Aligning in favor with their monetary policy agenda, was the employment report release for June last Friday, where the results indicated that the US labor market is still tightening given also that the actual rates and figures were better than forecasted. The relatively speaking, favorable results sent the USD Index on upward spiral extending its already overextended rally, north of the 108 level, territory last seen 20 years ago. This in effect contributed to the precious metal sliding even lower, given the negative correlation of the two trading instruments.
On another note, New York’s Federal Reserve president John Williams, commented on 8th of July, that US economic growth could fall below 1% this year and remain stagnant throughout 2023, as Fed’s primary objective is curbing inflation. This statement puts him at the low-end spectrum of the Fed’s recent growth projections. He also commented that, even though, the June’s unemployment rate report remained stable at 3.6% for the fourth consecutive month, he projects that rate to rise to 4% during 2023. The projections towards economic growth restrictions, continuation of the inflationary pressures and central bank’s aggressive responses could in fact weigh down on the shiny metal even more.
Further evidence supporting extension towards the downside comes from derivative trading analytics. Dealers in the COMEX market assess institutional investors’ appetite and sentiment for gold, using the net-long position metric, and data indicates that fewer institutional investors expect a rally of the yellow metal in the short-term. Furthermore, precious metal strategists also point to hesitancy towards adding gold to their portfolios and await evidence indicating the transition of the global economy into stagflation, looking forward for the end of the Fed’s tightening cycle.
In terms of financial releases coming up in the next days, we note the release of the highly anticipated US CPI rates on MoM basis for June and the YoY, tomorrow 13th of July, where an increase could justify the Fed’s hawkish plans for the next meeting and most likely will cause the Bullion’s price to deteriorate further.
Technical Analysis
XAUUSD H4
Looking at XAUUSD 4H chart we can observe its downward sloping trend initiated on the 13th of June where it started to slide from the $1878 level, reaching lower peaks as time went by, without finding much support to ease its fall. On the 5th of July, it broke below the $1800 mark plunging lower, finding support at the $1720 (S1) support level, an area once visited before in August 2021. Having said that, we maintain a bearish outlook bias for the future continuation of the precious metal’s price action. Supporting our case is the RSI indicator found below our 4-hour chart, which closes in on the 30 oversold level showcasing the negative sentiment surrounding gold at the current time. Also worth pointing out, is the price action taking place near the lower bound of the Bollinger band, adding to our case. Should the bears continue to reign over, we might see a break below the $1720 support (S1) line and a move close to the $1700 (S2) support barrier. Should the bulls take over however, and for us to change our assessment towards a bullish bias, we would require seeing a break above the $1783.6 resistance (R1) line and a definitive move towards the $1812 resistance (R2) level.
