Amid swift interest rate increases by the major central banks in their fight against pervasive inflationary pressures, which stifled the metal’s investment attractiveness, gold prices plunged to a 16-month low during the week. Despite fresh worries about the outlook for global growth and pervasive inflationary pressures, prices nevertheless managed to mount a remarkable comeback from the critical support of the $1680 per ounce level.
Additionally, a declining dollar index encouraged gold purchases at lower prices. Concerns about economic growth were stoked by statistics showing a rise in US initial unemployment claims for the third week in a row and a decline in the Philly Fed manufacturing index for the second consecutive month. The manufacturing and service sectors in the US experienced mixed activity in July, according to preliminary figures.
Reason for the rebound from 16-month lows- The ECB monetary policy meeting, wherein the bank raised interest rates by 50 basis points against market forecasts to combat excessive inflation, was the main event of the week. The head of the ECB even issued a warning over ongoing inflationary risks in light of the ongoing conflict in Ukraine and the steady state of energy prices. The Bank of Japan, on the other hand, followed expectations and continued to take an accommodating position while boosting inflation expectations and emphasizing dangers to the economy. The US Fed’s policy meeting is next week, and as markets closely monitor it, bets on a rate hike of 100 basis points have decreased.
Pivot points for yellow metal prices – The path ahead for gold is a little rocky, but despite the sharp sell-off that has been going on for the last five weeks, gold prices have managed to find a solid cushion at the crucial level of $1680 per ounce, which has been shielding gold for almost two years. As long as this continues, we anticipate that the gold market will begin to recover. The initial support level at the MCX is 49,500 per 10 gm, while the main support level is 48,800 per 10 gm. Only if prices successfully breach this crucial support level are we likely to witness an intensification of the negative spiral. Gold price triggers in the near term- The conclusion of the Fed’s meeting on monetary policy will be the main driver of gold prices in the coming week.
The US inflation rate soared to 9.1 percent in June, a new 41-year high, and the Fed is expected to announce another significant interest rate hike at the upcoming meeting. However, two Fed officials recently discounted the likelihood of a rate hike of 100 basis points, which lifted risk sentiment in the markets and hurt the dollar. To battle runaway inflation, it now appears almost probable that the US Fed will increase rates by 75 basis points, but that has already been taken into account.
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