Gold price is consolidating recent losses around year low. Caught a two-day downtrend towards today’s European session. Also, the intraday high is hovering around a price level of $1,717. The metal’s recent gains are linked to continued dollar weakness as well as optimism in the options market. It is not out of place to say that a slow start to the important week also contributed to the recovery of gold.
cryptocoin.com As we reported, the Dollar Index (DXY) hit a two-year high on Friday. Then it started to pull back and is down for the second day in a row. In doing so, the dollar’s benchmark against the six major currencies has changed, especially with the mixed US data and cautious Fed speech the previous day. Accordingly, the Fed’s interest rate hike expectations on its next moves have been moderated recently. Additionally, the weight on DXY is linked to a period of silence from Fed policymakers ahead of the Federal Open Market Committee (FOMC) in late July.
FED statements push gold price higher
After the release of the US CPI data, the markets changed the Fed’s 0.75 point rate hike expectations. Accordingly, they now expect an increase of 1.00 points. Thereupon, the FED intervened on Friday to lower expectations. which helped gold to hold the low of the year marked on Thursday. It then caused a rebound on a closing basis from the key support line. Atlanta Fed President Raphael Bostic said on Friday that the 75 basis point rate hike in June was a “big move”. Meanwhile, San Francisco Fed Chairman Mary Daly said on Friday, “The Fed is trying to reduce inflation without stopping the economy.” However, St. Louis Fed President suggested that a 100 or 75 point increase would not make a difference. In the light of all this, the Wall Street Journal came out with a news that lowered the expectations of the market.
The pessimistic pressures on the US economy have raised concerns that market expectations are not quite right. The Consumer Expectations Index fell to 47.3, the lowest level since May 1980. The pessimistic numbers support gold buyers. However, June Retail Sales in the US increased 0.8% month on month and 1.0% versus -0.1% previously. However, the University of Michigan Consumer Confidence Index rose to 51.5 from the July forecast of 49.9.
Atlanta Fed signals recession
Friday’s Atlanta Fed GDPNow changed its second-half growth forecast. It supported recession fears with the forecast coming in as -1.5% compared to -1.2% before. Concerns gained momentum as the latest forecasts hinted at second negative numbers pointing to a US recession. However, the GDPNow model forecast of real GDP growth for the second quarter has also changed. The GDPNow forecast fell from -1.2% on 8 July to -1.5% on 15 July.
Gold risk return (RR) in favor of the bulls
The gold risk return (RR) reveals the difference between call options and put options. The indicator marks the first weekly gain of 5 weeks. It also posted a weekly figure of 0.210 on Friday, giving the strongest data in favor of the bulls. However, the daily RR figures have also increased to 0.015 for the last three days in a row. The descending downward trend of the gold price came with hawk options market cues recently. Therefore, the latest recovery is likely to be valid.
China supports recovery
Headlines suggesting more stimulus from China are also helping the Gold Price recover. “The Chinese economy is facing downward pressure due to COVID-19 and external shocks, and the central bank will “increase the implementation of prudent monetary policy,” said Yi Gang, Chairman of the People’s Bank of China (PBOC). He also made a comment, mentioning that “China’s monetary policy has ample scope and adequate tools to deal with new challenges amid a weak economic recovery, including further lowering of banks’ reserve requirements.” It is worth noting that Xinhua cited that Chinese Vice Premier Liu He called for stronger steps to be taken to increase employment.
ECBs and PMIs in focus
European Central Bank Monetary Policy Meeting and US flash PMIs will be critical for gold. ECB hawks are preparing to announce a 0.25% rate hike for the first time in many years. Also, concerns about the recession in Germany seem to be straining policy makers. On the other hand, preliminary PMIs for July are likely to indicate easing. However, the risk of signaling a pessimistic outcome is greater for the bloc than for the US. Therefore, it can create weight on the gold price.
Technical view of gold price
Gold price extends the bounce from an upward sloping support line from March 2021. However, a corrective pullback to its yearly low has emerged. The pullback has signaled from the oversold RSI (14) to divert gold buyers into a horizontal area comprised of multiple levels that have been marked since early 2021. The mentioned level is around $1,721-22 dollars. However, there is a 78.6% Fibonacci retracement level near $1,760 in March 2021-22. This level indicates that gold could test $1,722 on the upside. Such a breakout could push the price of the precious metal up to the May low of $1,787.
