HIGHLIGHTS
- Spot gold was 0.1% higher $1,774.00 per ounce
- Gold Prices Per Gram $57.68
- Gold Prices Per Kilo $57,677.10
As the dollar increased and bond yields decreased, gold prices climbed slightly as investors evaluated US-China tensions and the Federal Reserve’s apparent shift to hawkish policy.
Despite the current geopolitical risks, gold has been receiving some haven support. Although market jitters have subsided a little, traders are still keeping a close eye on the most recent events after China cut off some commerce with Taiwan in retribution for US House Speaker Nancy Pelosi’s prominent visit to the island.
The price of spot gold increased by just 0.1 percent to $1,774.00 per ounce, while the price of U.S. gold futures increased by 0.6 percent to $1,795.90.
According to David Meger, director of commodities trading at High Ridge Futures, expectations of scaled-back rate hikes and an obvious slowdown in the economy have greatly bolstered gold prices.
“Dollar rallied amidst Fed rate hike expectations and since expectations have been muted slightly, dollar strength is going to wane a bit in the near term, allowing some support in the gold market,”
Meger added.
Dollar Stands Tall
Whereas front-end Treasury yield declined, the price action of XAU/USD increased.
On the other hand, since June 2021, the US Dollar Index (DXY) has been rising, and there are currently few indications that this trend will reverse.
In view of this, the anti-fiat yellow metal was in its optimal situation.
The dollar index increased by 0.2 percent, making gold bought in dollars more expensive for holders of other currencies. US 10-year Treasury yields have also risen to their highest level in nearly two weeks.
The euro jumped 0.2 percent to $1.1085, albeit it continues under pressure, while the yen recovered some of its overnight losses, rising 0.3 percent to 132.71 per dollar.
Pelosi’s visit to Taiwan, which China considers a renegade state, sparked outrage in Beijing, with jets buzzing the Taiwan Strait and the announcement of live-fire military drills – but investors expected this.
“The market got a bit more relaxed, perhaps over the U.S.-China situation,” said Moh Siong Sim, currency strategist at Bank of Singapore.
“I think the market was bracing probably for a worse outcome, maybe no news is good news.”
Fed members Mary Daly and Charles Evans hinted on Tuesday that they and their colleagues are steadfast and “fully united” in raising interest rates to levels that will considerably restrict economic growth.
The benchmark 10-year Treasury yield remained unchanged on Wednesday after rising roughly 14 basis points overnight.
Job Outlook
The US is expected to add 250k jobs in July as opposed to 372k in June, while the unemployment rate is expected to remain unchanged at 3.6 percent.
Average hourly wages are reported to have marginally decreased from 5.1 percent to 4.9 percent year over year. Significantly worse-than-expected results would highlight growing worries about a recession.
Going Forward
If traders continue to concentrate on pricing in rate cuts for 2023, that might be excellent for gold.
However, this is a glaring departure from what decision-makers have been stating this week. Fedspeak has generally worked to allay anticipation of a turnaround.
This is putting markets at risk for future disappointment and putting gold at risk.
Nevertheless, this does not imply that market participants will begin to embrace the reality that the Fed is attempting to present.
John Maynard Keynes, a renowned economist, once observed that “markets may stay irrational longer than you can stay solvent.”
Overly Optimistic Gold Sentiment Forecast
According to the IG Client Sentiment (IGCS) indicator, almost 78% of retail traders are long gold.
The fact that the vast majority of investors are still long and IGCS tends to act as a contrarian indication seems to suggest that the price may continue to decline.
However, compared to yesterday and last week, respectively, upside exposure has dropped by 6.41% and 15.90%.
In light of this, recent positioning changes suggest that the price trend may revert higher.
Disclaimer
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