Although market volatility traditionally drives investor appetite for safe-haven assets, the aggressive US monetary policy response to ongoing inflation shocks and increased value of the US dollars have been pushing gold prices lower.
Gold has also been looking subdued but the consolidation is still holding. The precious metal is currently trading at $1,760 per ounce, down around $90 month-on-month as the US Federal Reserve’s (Fed) recent monetary policy changes set in and shake investor confidence.
The dollar is also expected to benefit from another large interest rate hike at the end of this month, which observers say may be as high as 75 basis points. This would push interest rates into the 2.25-2.5 per cent range.
Meanwhile, downward trends in equity prices in yields signal that financial markets are now focusing on a recession as the Fed and other central banks grow steadily more hawkish in tightening monetary policy, putting pressure on long-term inflation expectations.
Given the circumstances, demand for gold as a hedge against inflation may cool down over the next few weeks, with a reversal in the precious metal unlikely in the coming months, until Group of Seven (G7) central banks soften their approaches.
On the downside, however, the $1,786-1,777 support will remain under the limelight, and if it breaks, the downtrend could could keep on extending towards the support zone around $1,760, and, although lower, eyes will shift to the 2021 barrier of $1,723.
And the significant downside juncture is now the $1,700-$1,730 range, where 2021’s lows and the 61.8 per cent retracement level from the 2018-2020 rally are concentrated.
If this level also falls in the next few weeks, the subsequent line of defence in gold may be the $1,650 level, through where the 200-week average and the 50 per cent retracement level from the two-year rally pass.
