- The price of gold is aiming to regain its intraday high at $1,710.21 amid lackluster DXY.
- A slippage in the odds of a 1% rate hike by the Fed did not support gold bulls.
- A weaker consensus for the S&P PMI data could lead to a sell-off in the DXY.
The price of gold (XAUUSD) rebounded slightly after remaining subdued during the Asian session. The precious metal picked offers after hitting a low of $1,705.55 and is hovering around an intraday high at $1,710.21. The shiny metal has been on the sidelines since last week, selling at auction in a wide range of $1,697.64-1,723.83 amid the unavailability of any potential triggers, which could guide a new direction. .
Meanwhile, the US Dollar Index (DXY) is showing signals of exhaustion after a pullback. The asset gradually rebounded after hitting a low of 106.92 on Tuesday. So far Monday’s bearish sentiment has not carried over to Tuesday, however, the decline looks warranted as the DXY struggles to establish itself above 107.50. A move down below Monday’s low at 106.92 should trigger a sell-off in the asset.
Also Read: Gold Price Forecast: Bulls Hesitant Despite Improved Market Mood
The Fed may not opt for a 1% rate hike
Gold price struggles despite dwindling odds of Fed 1% rate hike
The the chances of a 1% rate hike by the Federal Reserve (Fed) have fallen sharply. According to CME’s FedWatch tool, expectations for a 1% rate hike were as high as 80% last week, which have declined to nearly 30%. Gold bulls failed to capitalize on similar information and are struggling to rise higher. The odds of a 100 basis point (bp) interest rate hike for July’s interest rate decision declined after the release of long-term inflation expectations. The economic data landed 2.8% lower than June’s print of 3.1%.
The inflation rate will peak sooner
Upper inflation rate weighed on the pressure on corporate margins and impacted household incomes. However, the price pressures will soon peak as lower oil prices in June and lower household demand for durable goods will resolve the imbalance in the demand-price mechanism. Optimism in retail sales and other demand indicators was boosted more by firmer price pressures rather than overall household demand. Therefore, lower demand due to quantity will lead to lower inflation rate.
Policy to be toughened further by other Western leaders
The price of gold is expected to face tremendous pressure this week as monetary policy announcements from the European Central Bank (ECB) and Bank of Japan (BOJ) remain focused. Market participants are expecting a rate hike from the ECB for the first time in 11 years. Given soaring inflation due to rising energy bills, ECB President Christine Lagarde will announce a rate hike this time around. Additionally, Reserve Bank of Australia (RBA) minutes remained hawkish for further guidance. Therefore, the wider environment of western leaders’ policy tightening will keep gold prices in check.
However, the Bank of Japan (BOJ) will maintain its dovish tone and discuss measures to inject liquidity into the economy to boost aggregate demand.
S&P Global PMI must remain in focus
Due to a light economic calendar this week, investors’ attention will remain at the exit of S&P Global PMI Data. According to the market consensus, the economic catalysts should deliver a weak performance. The Global Composite data is seen at 51.7, lower than the previous release of 52.3. The manufacturing PMI could slide to 52 from the 52.7 recorded earlier. While the services PMI is expected to show a slight correction to 52.6 from the previous figure of 52.7. This will keep the DXY on the back foot and could support the gold bulls.
Gold technical analysis
The price of gold remained vulnerable for the entire month after giving up psychological support at $1,800.00. The precious metal is auctioned in a descending channel which indicates limited downside movement. The upper and lower part of the above mentioned chart pattern are placed from the July 6 high and low at $1,771.89 and $1,732.27 respectively.
A failed attempt at a bullish crossover by the 20 and 50 period exponential moving averages (EMA) at $1,714.20 adds to the downside screens.
Meanwhile, the Relative Strength Index (RSI) (14) is holding above 40.00, however, gold prices will remain on edge.