The gold market has struggled in recent months and weeks as the US dollar has been on an unstoppable rise. The US dollar, on the other hand, fell from its 20-year high last week and its parity with the euro. However, there is a strong consensus that DXY will remain high in the near future. Master analysts interpret the market and analyze the technical outlook of gold.
“This creates a positive environment for gold”
There is also some good news for investors of the horse. No matter how strong the US dollar is, it is likely to lose its validity in global financial markets. Fear is a powerful emotion and is growing among investors. There is a real fear of recession in the US that will create an environment of stagflation as inflation remains high all the time.
Bank of American (BofA) recently made headlines predicting a mild recession into the fourth quarter. Many market analysts, including the Atlanta Federal Reserve, already see the US in a recession. So BofA, it might be a little late. Data from the regional central bank predicts second-quarter GDP to decline by 1.6%, in line with the decline in the first quarter.
Analysts say a recession will force the Federal Reserve to at least slow the pace of rate hikes, if not stop the tightening cycle. At the same time, if inflation remains high, this will lead to lower real interest rates. This means a positive environment for gold.
John Hathaway: It is possible for both gold and dollar to rise together
But another fear is growing in the market. In three separate interviews, a potential sovereign debt crisis is emerging in Europe, said John Hathaway, Sprott Hathaway Special Events Strategy Portfolio Manager, Chris Vecchio, Senior market strategist at DailyFX, and David Madden, market analyst at Equity Capital. The comments came after the ECB surprised markets by raising interest rates by 50 basis points on Thursday. At the same time, the ECB announced the creation of the Transmission Protection Instrument (TPI).
cryptocoin.com As you follow, the ECB is basically tightening its monetary policy. It will continue to buy bonds from economically weaker countries through TPI. This will keep all European bonds relatively level. Hence, it will avoid any risk of fragmentation. Italy tops the list for this TPI. Just before the ECB’s monetary policy decision, Italy’s political system is in chaos following the resignation of Prime Minister Mario Draghi.
John Hathaway notes that during times of extreme uncertainty, investors seek safe-haven assets to protect their capital. Therefore, he says, it is possible for both gold and the US dollar to rise together.
At the same time, some analysts note that fundamentals are shifting at a time when downside speculative positions are at their highest level in years. Speculative interest was last this low in May 2019. That is, it was just before the rally that caused gold prices to hit record highs in August 2020.
Andrew Schrage: Yellow metal conditions far from bullish
Commenting on the markets, Andrew Schrage, CEO of Money Crashers, said in a statement:
Gold conditions are far from bullish, despite modest intraday rebounds that have led some to seek medium-term bottoms. We anticipate that gold will continue to move upside down against the US dollar until July. However, we expect traders to sell off any rally in anticipation of a sustained dollar strength in August and beyond.
“This is the real question for the golden bulls!”
Andrew Schrage says gold’s already dubious reputation as a hedge against inflation has taken a hit this year. According to Schrage, there are far more attractive places to put money in a hyperinflationary environment. In this context, Crashers CEO says:
The real question for gold bulls is whether inflation got under control before the dollar peaked. If so, the fall of gold could be much further. If the dollar weakens from here, expect less downside risk.
This week, however, there has been a decline in Treasury rates. Craig Erlam, a senior market analyst at Oanda, says this has helped push gold higher.
“Gold markets bounce off crucial support”
Market analyst Christopher Lewis draws the technical picture of gold as follows. The ECB shocked the markets with a 50 basis point increase. Also, gold markets had a wild ride this week. This had a negative impact on the US dollar. That’s why the gold markets rallied.
At this point, we should also pay attention to the fact that the $1,680 level, where the 200-week EMA is also sitting, is held. So you have to be very cautious about trying to short this market in the meantime. Whether we will continue to go higher is a completely different question. But in the meantime, I think we’re a little more hop-on than anything else.
“A bit of a short-lived recovery, followed by scattered volatility”
Note that the Federal Reserve’s interest rate decision is due next week. But perhaps more importantly, there will be an explanation that people will parse. It is possible that these statements will throw the gold markets into turmoil. So while I believe we’re in the middle of a nice jump, it’ll be interesting to see how we do next at 27. There may be some short-term recovery next week, followed by scattered volatility.
Looking at this chart, we see that the $1,800 level is a major resistance barrier. At this point, the market will have to decide whether it can really continue higher. On the other hand, if it turns below last week’s low and smashes, it opens the door to important selling traps in the gold market. In that case, we are likely to fall pretty hard.”
