Gold price refreshed intraday low as corrective pullback from yearly bottom reversed. Yields point to an economic slowdown after the CPI soared to a 40-year high. This negative mood supports the demand for the US dollar. According to market analyst Anil Panchal, US PPI risk catalysts are likely to entertain gold traders. But the bears are holding the reins amid inflation and recession woes.
Gold price drowned by yield curve inversion
The precious metal is struggling to digest US inflation data amid mixed reviews following the markets. It recovered from the lowest level of the year the previous day. However, it was followed by hawkish Fedspeak and the Bank of Canada (BOC) rate hikes of 100 basis points (bps). The analyst notes that these developments paved the way for the golden bears on Thursday. The analyst makes the following assessment:
Basically, the key US Treasury yield curve between 2-year and 10-year Treasury coupons is inverted. This reflects recession fears and puts pressure on the gold price.
US 10-year Treasury yields rose by the latest four basis points (bps) to 2.95%. However, its 2-year equivalent has risen to 3.18% by press time. The yield curve shows a 23 basis point reversal among the key bond coupons mentioned above. It also points to the market’s fears of an economic slowdown.
Biden failed to tame US inflation fears
cryptocoin.comAs you can follow, the US CPI in June rose to 9.1% on an annual basis. This rate marks the highest level in 40 years. However, Core CPI, which excludes volatile food and energy prices, fell to 5.9% from 6% previously. However, it exceeded analysts’ forecast of 5.8%.
Following the US data, White House (WH) Economic Advisor Brian Deese gave a statement to CNBC. He said the CPI data showed the urgency for Congress to pass legislation to encourage semiconductor manufacturing in the United States. On the other hand, US President Biden stated that the CPI data is ‘out of data’ as gas prices have fallen.
Bank of Canada also supports golden bears
The Bank of Canada (BOC) increased the policy rate by 100 basis points to 2.5% in June. The expectation was a 75 basis point increase. “With the economy clearly in excess demand, inflation high and expanding, and more businesses and consumers expecting hyperinflation to continue for longer, the Governing Council has decided to front-load the path to higher interest rates,” the BOC Statement said.
US Dollar Index drowns gold prices
The US Dollar Index (DXY) changed its two-day downtrend and rose 0.32% on the day to near 108.40. This justifies the high inflation figures of forty years. Also, DXY continues to put pressure on the gold price. The recent rise of DXY is also likely to be linked to fears of a global economic slowdown and further pessimism surrounding Europe, according to the analyst.
Falcon Fedspeak prefers bears
Fed policymakers recently opted for the market’s hawkish bias while tracking the highest US inflation data in 40 years. Recently, San Francisco Federal Reserve Bank Chairman Mary Daly said her most likely stance was a 75 basis point increase in July. However, she noted that a 100 basis point increase is also possible, as reported by the New York Times.
Prior to that, Richmond Federal Reserve Chairman Thomas Barkin voiced his support for higher rates at the last meeting. Cleveland Federal Reserve Chair Loretta Mester said: “Data on the CPI do not suggest a smaller rate hike in July than in June.”
Gold price technical view
Market analyst Anil Panchal illustrates the gold price technical outlook as follows. Gold price failed to extend the corrective pullback from an upward sloping support line from March 2021. For this, it is bottoming out towards the end of 2021. However, it is worth noting that the oversold RSI conditions are pushing the bottom.
However, the $1,700 threshold is likely to act as an additional downside filter outside the aforementioned $1,709 support line to limit the precious metal’s short-term declines. Once the golden bears rein in the $1,700 mark, the possibility of witnessing a southward move to the previous year’s low of $1,676 cannot be ruled out.
On the contrary, recovery moves from the 78.6% Fibonacci retracement level of March 2021 to March 2022 need confirmation near $1,760. Before that, the December 2021 low near $1,753 could limit a sudden recovery. Even if the price crosses $1,760, gold buyers will seek confirmation at the May low of $1,786 before regaining control.
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