On Friday, the dollar gave up on its initial gains after another jump in US inflation. As a result, the safe-haven charm of gold shone. The gold price jumped to a new multi-week high as the current price range also attracted offers for bullion.
“Dollar reversal pushes precious metals up again”
cryptocoin.com Consumer spending in the US increased more than expected in June. Monthly inflation realized its biggest increase since 2005. The dollar quickly gave up on small gains following the data and fell 0.3%. This move also allowed gold to expand its gains.
Daniel Pavilonis, senior market strategist at RJO Futures, says a reversal in the dollar is pushing metals up again as markets dig deeper into the data. Pavilonis notes that some of these may be safe-haven purchases. But overall, he adds, there’s a quest for metals that are “pretty cheap” right now.
“Fed will be more aggressive if inflation continues”
Gold is still tied for its fourth consecutive monthly decline. It has lost more than $300 since it crossed the $2,000 mark in March as the Fed embarked on a rapid rate hike and the dollar emerged as a preferred refuge amid rising recession risks. Jim Wyckoff, senior analyst at Kitco Metals, comments:
If we get more problematic inflation figures, the Fed needs to be more aggressive.
“Gold price gains strength from a softer dollar”
As you know, higher interest rates increase the opportunity cost of holding non-yielding gold. However, there is a perception that markets took a relatively less aggressive stance on Wednesday after Fed Chairman Jerome Powell’s expected 75 basis point gain. That’s why the gold price took some respite, jumping over 1%. FXTM analyst Lukman Otunuga comments:
Gold is powered by a softer dollar. The Fed is cooling its rate hike bets. Soft economic data is likely to continue to support gold.
“High interest rate hike bets pull gold down”
The US economy contracted in the second quarter. Safe-haven gold gained more than 1% on Thursday, driven by this data. Lukman Otunuga notes that if Friday’s US PCE data show signs of peaking inflation, it could be a welcome development for gold. The analyst also says:
A hot report is likely to feed the inflation monster. As market players increase their interest rate hike bets, they push gold further down in the process.
“Gold price has been trying to bottom out since then”
OANDA senior analyst Jeffrey Halley says gold is not a gold story in itself. Rather, he notes that it continues to be inversely proportional to the dollar and yield. But the dollar’s overall strength lately has held the bullion on its way down for the fourth month in a row. In this context, the analyst makes the following assessment:
Gold bullion saw a sell-off below $1,700 (earlier this month). However, it is important to test and hold the long-term support at $1,675/80. Gold has been trying to bottom out ever since.
“Only in this case, the gold price will return to the $2,000 level”
Chintan Karnani, research director at Insignia Consultants, made the following statements:
In July, gold bulls were spooked by very aggressive rate hike expectations from the Fed and nearly all central banks. This led to a historic high in the US dollar index and higher bond yields. Therefore, gold recorded losses on a monthly basis.
Meanwhile, Karnani says gold will only return to the $2,000 level if the US dollar index falls and US interest rates “peak” at the FOMC meeting in November.
“Gold capitalizes on the perception that the Fed may not be aggressive”
However, Rupert Rowling, market analyst at Kinesis, notes that the price of the most active gold contract has increased by nearly $40 since Fed Chairman Jerome Powell’s speech on Wednesday. He adds that gold is taking advantage of the market’s comment that the Fed may not be so aggressive about rate hikes. In a note, Rupert Rowling underlines:
Signs that the Fed may be less aggressive in future rate hikes have allowed the precious metal to recoup some of the month’s losses. Therefore, gold finished the week with a rise.
