Gold price climbed above $1,980 for the first time in two months this week, but failed to maintain its bullish momentum. The Fed’s policy announcements next week could trigger the next big move in XAU/USD as investors potentially reassess the interest rate outlook.
What happened in the gold market last week?
Data from China, the world’s largest gold consumer, early Monday revealed that real Gross Domestic Product (GDP) expanded by 6.3 percent year-on-year in the second quarter. This figure came after 4.5 percent growth recorded in the first quarter, but fell short of the market expectation of 7.3 percent. XAU/USD fell below $1,950 in the initial reaction to this report, but managed to erase its daily losses as the 10-year US Treasury yield turned bearish in the American session.
Retail Sales in the U.S. rose 0.2 percent month-on-month to $689.5 billion in June, compared to expectations for a 0.5 percent increase, according to data released by the U.S. Census Bureau on Tuesday. The Retail Sales Control Group, which does not include revenue from automobiles, tobacco shops and gas stations, increased 0.6 percent in the same period. This figure confirmed healthy consumer activity, beating the market’s forecast for a 0.3 percent decline by a large margin. By contrast, the US Dollar (USD) has remained resilient against its rivals. However, as the 10-year U.S. bond yield continued to decline, Gold was on the rise again. A decisive break above $1,960 has also attracted technical buyers, providing additional support for XAU/USD.
A lot of data around the world drew attention
Global bond yields fell on Wednesday after data from the UK revealed a noticeable drop in inflation in June, prompting markets to cut back on hawkish Bank of England (BoE) bets. Although the USD gained strength in the middle of the week, the sharp rise seen in the XAU/GBP pair showed that gold was able to catch some of the capital outflows from the Sterling. As a result, the XAU/USD pair remained stable around $1,980.
The U.S. Department of Labor announced on Thursday that there were 228,000 initial unemployment claims in the week ending July 15, the lowest since the second week of May. After this data, the 10-year US bond yield showed a steady recovery, causing XAU/USD to erase some of its weekly gains. The sharp rise in USD/JPY helped boost the weekly gains on Friday amid reports that the Bank of Japan (BoJ) will maintain its monetary policy adjustments at next week’s meeting. In the absence of data releases, XAU/USD extended its downside correction ahead of the weekend.
What to watch next week?
S&P Global will release its preliminary PMI surveys for July on Monday. Should the composite PMI drop below 50 from its final value of 53.2 in June, escalating recession fears could put pressure on US bond yields and the USD. However, market participants may stay away from taking large positions ahead of the Fed’s policy announcements on Wednesday. After the July meeting, the US central bank is expected to increase the policy rate by 25 basis points (bps) to the 5.25-5.5 percent range. The Summary of Economic Forecasts, released in June, showed that the majority of policy makers considered it appropriate to raise the policy rate at least twice this year. Jerome Powell, Chairman of the Federal Open Market Committee (FOMC), highlighted this issue in every speech he gave on policy in the weeks that followed.
Investors became reluctant to price out additional rate hikes after July, after recent inflation data showed the Consumer Price Index (CPI) rose only 3 percent year-on-year in June and fell markedly from 4% in May. This dove might come as a surprise if the Fed acknowledges lower-than-expected inflation data in its policy statement, or FOMC Chairman Jerome Powell’s post-meeting press conference, and avoids reiterating the need for another rate hike. As a result, US yields could turn south and XAU/USD could gain bullish momentum.
How does the gold price move against the market expectation?
On the other hand, a sustained pushback against market expectation could help the USD outperform its rivals. Powell could reiterate the data-driven approach and state that another rate hike would be in line with his projections. In this scenario, XAU/USD may come under bearish pressure again. On Thursday, the US Bureau of Economic Analysis will release its first estimate of second-quarter Gross Domestic Product (GDP) growth. The US economy is expected to expand at an annual rate of 1.8 percent in the second quarter, slightly lower than the 2 percent growth recorded in the first quarter. Even if a hawkish result from the Fed helps the USD find demand, weaker-than-anticipated Q2 growth could revive recession fears and put pressure on the USD. A strong GDP data of 2 or more could have the opposite effect, pushing the USD higher and causing XAU/USD to turn downward.
Finally, the Personal Consumption Spending (PCE) Price Index, the Fed’s preferred inflation indicator, will be watched closely by market participants ahead of the weekend. It’s hard to piece together different scenarios that explain how the gold price might be affected without seeing the market’s reaction to the Fed’s decision and the US GDP data. However, monthly Core PCE inflation will be the key component to watch. A stronger-than-anticipated increase in this data could support the USD.
What is the gold technical outlook?
According to analyst Eren Şengezer, the key technical area for gold appears to have formed in the $1,950-1,960 range, where the 100-day Simple Moving Average (SMA), the Fibonacci 23.6 percent retracement of the recent uptrend, and the 50-day SMA align. If XAU/USD manages to stabilize above the upper boundary of this range and starts using it as support, it could face temporary resistance at $1,980 (static level) before targeting $2,000. According to the analyst, a daily close below $1,950 may tempt sellers and open the door to a fresh decline. In this case, the 20-day SMA aligns as initial support around $1,935 ahead of $1,910 (static level) and $1,900 (psychological level, Fibonacci 38.2% retracement).
Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart has dropped below 50, showing that XAU/USD has lost its bullish momentum but has yet to signal a reversal. On the other hand, in the FxStreet gold forecast survey, one-week and one-month average targets are aligned at $1,966 and $1,987, respectively.
How will Bitcoin be affected by all these developments?
Like gold, the price of Bitcoin has been affected by a series of events that took place in the global financial world this week. The first catalyst was the release of economic data from China, the largest consumer of Bitcoin, which showed a slower-than-expected expansion in the country’s Gross Domestic Product (GDP). This news triggered a short-term drop in Bitcoin price as investors initially reacted to the uncertainty. However, as other factors came into play, such as the decline in global bond yields and increased market uncertainty, Bitcoin was able to bounce back and find support at key levels.
As the week progressed, all eyes turned to the Fed’s policy announcements scheduled for the next week. Speculation about the possibility of interest rate adjustments has caused market participants to reassess their positions in Bitcoin. If the Fed’s policy statement shows a cautious stance on raising interest rates, it could be seen as a positive signal for Bitcoin if a dovish approach is taken. Lower interest rates typically lead to a weaker US dollar, which could increase demand for Bitcoin as an alternative store of value. Conversely, the Federal Reserve taking a more hawkish stance and pointing out that interest rates could increase further could put bearish pressure on Bitcoin again as investors seek higher-yielding assets.
Also, other economic indicators and geopolitical events during the week may affect Bitcoin’s trajectory. For example, strong economic growth data from the US could potentially affect the price of Bitcoin by fueling expectations for tighter monetary policy. Conversely, weaker-than-expected growth numbers could raise concerns about a potential economic slowdown and increase demand for Bitcoin as a safe-haven asset. In addition, unforeseen geopolitical developments or regulatory news regarding cryptocurrencies may create additional market volatility.
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