- Gold is trashed as the US Dollar rallies to new bull cycle highs.
- The Fed is worrying the financial markets, which should rise by at least 50 basis points this week.
At $1,819.52, the price of gold was down about 2.78% after falling from a high of $1,879 to a low of $1,819.10 as investors turned to the greenback with fears of a recession taking hold.
The Federal Reserve is expected to rise this week, pushing bond yields to their highest in more than a decade, with the central bank expected to raise interest rates by at least 50 basis points after inflation hit a low. 40-year high of 8.6. % in May.
As a result, US stocks fell sharply on Monday, with the S&P 500 poised for its fourth consecutive decline. The benchmark is more than 20% below its January 3 closing high and such a drop would confirm that the index is in a bear market, by a commonly used definition.
The DXY index, which compares the greenback to a basket of rival currencies, climbed to 105.285, its highest level since December 2002 which saw the euro bottom at 1.0403 and the yen at 135.20.
“Until there is evidence that inflation is peaking and on a sustained downward path, financial asset prices will remain under pressure,” analysts at ANZ Bank said.
Despite the hunt for safety, gold for August delivery closed at $29.10 to settle at $1,831.80 an ounce.
“While the strong inflation data immediately translated into higher gold prices, buying gold as an inflation hedge is only viable to the extent that monetary policy does not hold. account of rising inflation,” TD Securities analysts said.
“The Fed’s upcoming hikes are set in stone, limiting the relevance of impending data releases to the left end of fed funds prices, but the market has aggressively challenged the right end, bringing the bulls 75 base points within reach.”
“In turn, the trading bias is still on the downside, but participants are still looking for catalysts to flush out the huge amount of self-indulgent length. We see risks that a technical failure could be the catalyst,’ analysts said:
- First, the CTA liquidation bar is getting thinner as we believe a break below $1810/oz would catalyze a substantial selling program from systematic trend followers.
- Second, prices have managed to break below the uptrend defining the bull market from 2019, which could catalyze further liquidations from complacent bulls in accessories stores.
- Third, a growing valuation gap between gold and real rates could potentially exacerbate the yellow metal’s downward revision, although it is attributed both to an undue rise in real rates given quantitative easing and to the still massive persistence of complacency in the yellow metal. which kept prices high.