27 July
gold and silver market
Spot Gold, as of now, is trading close to its recent high around 1980. The question arises: Why did the price rise if the Federal Reserve (FED) hinted at a potential rate hike in September?
There are two possibilities for this. First, the central bank may have indicated a data-driven approach to future rate hikes, and markets were eagerly waiting for more cues on stimulus measures in major importer China.
Additionally, expectations of further rate hikes by the European Central Bank (ECB) and the Bank of England (BoE) are contributing to limiting the gains for the non-yielding yellow metal, at least for the time being. Investors seem convinced that the ECB will increase borrowing costs in both July and September. Meanwhile, the BoE is anticipated to raise interest rates by 25 bps in each meeting through November. These expectations were boosted by the recent surprise in pay growth, although softer consumer inflation figures from the United Kingdom (UK) last week pushed back against expectations for a more aggressive policy tightening by the central bank.
However, the downside for Gold’s price remains cushioned due to the prevailing consensus that the Fed is nearing the end of its current interest rate-hiking cycle. Furthermore, concerns about a global economic downturn are also influencing the market sentiment.
Market participants are now looking forward to the ECB policy decision, which, along with important US macro data, should provide some meaningful impetus to the Gold price. Thursday’s US economic docket includes the release of the Advance GDP report for the second quarter, Durable Goods Orders, the usual Weekly Initial Jobless Claims, and Pending Home Sales data. These factors could influence the dynamics of the USD price and create short-term trading opportunities around XAU/USD. Subsequently, the focus will shift to the release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, scheduled for Friday.
Technically, on the daily chart, we are on the verge of the trend line connecting the highs of May and July. For the market to trend higher, we would need a significant surprise from the ECB or GDP data. As of now, support levels are at 1969 and 1965, while the recent high of 1988 may act as a resistance.
The upside tick in the RSI and the 21-day EMA crossing above the 50-day EMA indicate that bulls currently have the upper hand in the market, and any price dips may be easily bought.
– Nitin Kedia
