Gold price key this week: MT4.MT5 related news

Gold had a tough week last week as markets reassessed rate hike expectations and a stronger dollar dented its safe-haven appeal. Analysts remained cautious this week as gold at $1,700 an ounce is a dangerous zone.

 

"Gold fell to 11-month lows as investors shunned precious metals in favor of the dollar amid heightened risk aversion in the market," said Daniel Hynes, senior commodities strategist at ANZ.

 

Gold prices tumbled more than 2% last week, the fifth straight weekly loss, a situation not seen in several years. Gold prices are down around 7% so far this year.

 

The main trigger for gold's $40 plunge last week was a surprise U.S. inflation report that showed price pressures rose 9.1% in June from a year earlier, leading the market to reassess expectations for a rate hike in July.

 

 

 

Ahead of the data, markets were expecting a 75 basis point hike. However, markets are no longer ruling out a sharp 100bps rate hike following the release of the inflation data.

 

Earlier, the Bank of Canada unexpectedly raised interest rates by 100 basis points. "A rate hike of this magnitude is very unusual," Bank of Canada Governor Tiff Macklem told reporters on Wednesday. "Inflation is too high and there are growing concerns that high inflation will continue."

 

In response, the U.S. dollar index hit a 20-year high, yields rose and gold fell, briefly dipping below $1,700 an ounce.

 

“Investors worried about the prospect of a global economic slowdown are shunning the asset and looking for safety in the U.S. dollar,” said Hynes. “Investors are trimming their exposure to gold. Rising CPI could staunch the Fed for another big move later this month. Determination to raise rates. Comex net long position has hit a 3-year low, while gold ETFs cut 29 tonnes of USD in the previous week.”

 

Whether raising rates by 100 basis points or 75 basis points, the Fed will demonstrate its commitment to fighting inflation at its July meeting, said Bart Melek, global head of commodity strategy at TD Securities. "Inflation will continue to be an issue and the Fed will have to tighten policy, which is bad for gold," he said.

 

The Fed has room to tighten monetary policy as retail sales in June beat expectations. "If the Fed still sticks to 2 percent inflation, interest rates could be higher than people think," Melek noted.

 

Ultimately, however, the Fed will have to avoid over-tightening. Melek added: "Gold will glow when they turn the other way."

 

 

Why $1,700 Gold is Dangerous for Gold?

 

Analysts said that since gold has not traded below $1,700 an ounce for a long time, there is not much support below the gold price, which is why a larger sell-off is likely.

 

"Gold has fallen more than I expected," said Everett Millman, precious metals expert at Gainesville Coins. "For weeks, a lot of people have been talking about $1,700 as a possible support level, and where we are right now, the downside risks are still pretty much there." High. It will take longer for the market to fully digest the Fed’s new expectations and a higher dollar.”

 

Gold prices are likely to hit $1,600-$1,550 in the short-term, but that doesn't change Millman's long-term expectations that prices will move higher by the end of the year.

 

The last time gold fell below $1,700 an ounce was before the outbreak. Now, it's in danger of a negative feedback loop, pushing prices there again, he warns.

 

“As market expectations and narratives are reassessed as a stronger dollar this summer, this will impact the technical outlook,” he said. “The negative feedback loop is that when gold prices fall, more technical traders will update their ranges and become less bullish. gold."

 

Bob Haberkorn, senior commodities broker at RJO Futures, said $1,700 is a key position for gold, and bargain hunters are now buying. "Gold is going to struggle in this environment," Haberkorn said. "A 100 basis point Fed rate hike, which is pretty big compared to what we've hiked in the past, will impact gold prices."

 

Melek added that he sees $1,679 as the first major support level and $1,818-$1,812 as resistance.