Gold continues to trade in a narrow range as it reacts to two opposing forces – rising interest rates and inflation.
“Gold prices have held above a key support at $1,800 per ounce. The gold price range is moving between $1,900 to $1,800. This correction was directly attributable to market participants’ focusing on dollar strength the result of rising interest rates,” according to FX Empire’s Gary S Wagner.
Meanwhile, Reuters reported: “Federal Reserve Chair Jerome Powell’s guidance that the US central bank will most likely raise interest rates by 50 or 75 basis points in July is ‘reasonable’, Richmond Fed President Thomas Barkin said on Tuesday, even as he cautioned against the bank moving so fast that it damages the economy.”
The London-based international news agency quoted Barkin as saying: “I am pretty comfortable with what Jay [Powell] said. He gave a range that feels pretty reasonable,” at a National Association for Business Economics webinar.
Reuters said the Fed is poised to deliver another bigger-than-usual rate hike at its next meeting in July as it seeks to tame inflation running at more than three times its two per cent goal, with fears growing that the economy will tip into recession as a result.
“You really don’t want to inadvertently break something and lead to a significant pullback in the reactions of economic actors that you weren’t anticipating. It is a fine balance and I think judgement plays a huge part,” Barkin said, according to Reuters.
FX Empire’s Wagner said: “If gold can hold above the key support level of $1,800, it will find minor resistance at the 200-day moving average which is currently fixed at $1843.
“Above the 200-day moving average, the next resistance level gold could encounter if it continues to rise from this price point is approximately $1,860, which is the high achieved last week.
“If gold can hold $1,830, it will either form a foundation at this price point and consolidate, or start a new rally from this base. With the next Federal Open Market Committee meeting scheduled for the end of July, participants will prioritise their focus on inflation.”
Wagner said inflation would likely continue unabated, pushing up gold.
“If inflation continues to run hot, we can expect to see gold move higher. However, if inflationary pressures begin to abate, we would expect to see it continuing to be pressured, resulting in lower prices.
“I believe that inflation will continue to run hot and continue to be not only persistent but elevated,” the veteran American technical market analyst said.