July 13 2022
For all its supposed promise as a store of value and a safe haven. Gold suffers just like any other currency from a strong USD, and a US Federal Reserve hell bent on defeating self inflicted inflation, by hiking US interest rates until the US economy stands on the brink of a deep recession.
It is only 4 months ago that Gold was soaring on safe haven status after the ill judged Russian invasion of Ukraine. Now that is all priced in, the big mover of markets is the extreme policies of the FOMC.
Gold it seems is no longer a safe haven, and although technically oversold right now, it is at the mercy of US data. Data that may help the FOMC to decide how much to hike US Interest rates at their next monetary policy meeting. Will it be the 75bp or just 50?
However, as today’s data is the highly important US CPI for June, where we expect an increase in headline inflation to 8.8% from 8.6 in May.
Core Inflation which excludes the volatile food & energy part of CPI, is expected to drop from 6% to 5.7%.
Gold broke strong monthly support last week at 1780, and as of yet has seen a correct or bounce of any significant magnitude.
Today we are sitting just above 1720 support. A strong CPI would put pressure on this support, which if broken would allow further losses to 1680 and possibly 1640 in due course.
If we do see a drop in Core or headline CPI, it won’t be enough to change the mind of the FOMC about hiking rates, but it might encourage the market to think that US inflation has finally peaked.
This would be a positive for the yellow metal in the short term at least, and we could see a relief rally to 1754 and 1760, or maybe we could go all the way back and test resistance at 1780, why not!.
But sooner or later the dollars strength is likely to return and the downside pressure will increase again and 1640, will make a nice medium term target.
Good luck trading today.
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