Gold price is back to intraday lows as DXY rises. The high inflation rate supported recession fears and the Fed’s 1% rate hike expectation. The harmful pairing of higher US CPI and lower Average Hourly Earnings will dampen overall demand, according to market analyst Sagar Dua.
Gold price is gradually falling
The analyst says that gold failed to stay above the critical resistance of $1,730.00 in the Asian session. The yellow metal later recaptured its daily low. The precious metal is gradually falling after hitting $1,745.43 on Wednesday. As we enter the European session, a significant drop below $1,725 will weaken the gold bulls.
The US dollar index (DXY) opened strongly around 108.30. After that, she gives a lackluster performance in the Asian session. DXY is auctioning back and forth in a narrow range of 108.20-108.47. It seems that market participants are building an initiative buying structure that will push the asset beyond its 19-year high of 108.58.
High inflation hurts wages
cryptocoin.comAs you follow, the US Bureau of Labor Statistics announced annual inflation as 9.1%. This rate was higher than the previous data of 8.6% and the estimates of 8.8%. This will reduce the value of ‘paychecks’ received by US households. It will create a huge real income shock to US households. Not only will it show multiplier effects on aggregate demand and growth forecasts, it will also reduce Consumer Confidence.
Average Hourly Earnings remained lower than in the previous edition, taking into account last week’s US employment data. According to the analyst, higher inflation rate and lower Average Hourly Earnings will significantly reduce household consumption and saving.
Any chance of a surprise rate hike?
The announcement of the rising inflation rate supported the Fed’s 100 basis points (bps) rate hike expectations. It is not possible to say that the Federal Reserve (Fed) will not make a historic move such as raising interest rates by 1%. The Fed is unwittingly committed to maintaining price stability. According to the analyst, it is possible that he chose the unusual to achieve this.
Meanwhile, the Bank of Canada (BOC) increased interest rates by 1%. It gave fresh blood to the psychology of central bank policymakers that a 1% rate hike might be a viable option.
Fed policymakers’ statement for July monetary policy took a very hawkish turn after price pressures passed 9%. San Francisco Fed chairman Mary Daly gave an interview to the New York Times. “From the data I’ve seen, my most likely stance is 0.75%,” Daly said. In today’s session, Fed Chairman Christopher Waller is scheduled to present his views on inflation and expected rate hikes.
The recession state has now become more visible
The global economy is going through a phase of cost inflation. In this environment, market participants and critics blame the Fed for a belated response to price pressures. Undoubtedly, the optimistic job prospects and solid growth prospects in the US economy are instrumental in putting the bullet in the Fed’s place. Optimistic catalysts support the Fed to tighten policy more strongly. However, the inflation rate does not show any signs of peaking even for a while. The analyst makes the following assessment:
There is a limit to how economic catalysts can bear the brunt of a higher inflation rate. In case of depletion, demand will fall drastically and recession will be real.
Gold price technical analysis
Market analyst Sagar Dua analyzes the technical outlook of gold as follows. Gold price fluctuates during the slightly longer inventory distribution phase, plotted in the $1,707.16-1,745.43 range on a four-hour scale. Given the previous vertical downward move, gold prices are expected to scale south again.
The shiny metal failed to stay above the 20-period Exponential Moving Average (EMA) at $1,734.16. This indicates that the rebound from the golden bulls is less secure. Also, the 50-EMA at $1,751.16 remained untouched, adding to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) is back in the 20.00-40.00 bearish range, indicating a new leg of the downside impinging wave.
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