Gold Market Finds Some Support After Inflation Data, But More Work Needed – Analysts

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(Kitco News) – Inflationary pressures in the United States peaked in July, relieving some pressure on the Federal Reserve to tighten monetary policy by cutting its bond buying program as soon as possible.

Modest change in monetary policy expectations after the US CPI rose 5.4% annually in July helps support gold prices; However, some analysts warn that the market still has a lot of ground to catch up to repair the damage caused by Sunday’s lightning crash.

For many analysts, the first hurdle for gold to overcome is $ 1,760 an ounce. December gold futures last traded at $ 1,751.50 an ounce, up 1% on the day.

In a recent research note, Lukman Otunuga, senior research analyst at FXTM, said the technical outlook for gold after Sunday’s sell-off is sharply bearish.

“Sustained weakness below $ 1,760 can cause a drop to $ 1,700 and below. Alternatively, a breakout above $ 1,760 could trigger a move towards $ 1,792 and $ 1,800,” he said.

Ipek Ozkardeskaya, senior analyst at Swissquote, said the sun may be setting on higher gold prices following online inflation data.

“Gold has missed its chance to shine in recent months. What would have made gold prices shine was soaring inflation expectations and falling US yields. But investors preferred to rush into the stock markets and cryptocurrencies, leaving gold behind the global risk rally. Now that US yields are preparing to rebound and inflation is expected to slow, gold is likely to lose its major bullish pillars and dive deeper, ”she said in a report on Wednesday.

Ozkardeskaya added that the only thing that could drive gold prices higher is a correction in the stock markets. Following the latest inflation data, the S&P 500 has hit a new intraday high. The broad stock market index last traded at 4,440 points, roughly unchanged that day.

“One thing that could keep gold from falling further is a possible sell-off in stocks, a gloomy market, less risk appetite and the urge to liquidate long positions in stocks with the fear of seeing the market plunge. global triggered either by the delta contagion crisis, or by the Fed’s stricter expectations, or a combination of the two, ”she said.

Other analysts have noted that it will be difficult for gold prices to recover as it competes with historical upward momentum in stock markets.

In a comment on Twitter, John Reade, chief gold strategist at the World Gold Council, said he was also monitoring the $ 1,760 level. In a recent interview with Kitco News, he also highlighted gold’s struggle against record stock valuations.

“Why do you need the diversity that gold offers when risky assets are hitting all-time highs almost every day,” he said.

However, Reade added that the long-term fundamentals for gold remain in place as the Federal Reserve will be limited to the extent to which it can tighten monetary policies in the future.

“The last round of tightening came to a halt very soon after it started and reversed because the global economy could not withstand higher interest rates,” he said.

Meanwhile, some are seeing another fundamental shift in the gold market as Sunday’s washout came after the precious metal was unable to break its 200-day moving average over multiple trials.

Standard Charter’s commodities analysts said in a recent report that there is a risk that gold will retest its annual low as prices remain above $ 1,790 an ounce. They added that an important support to watch is between $ 1,682 an ounce and $ 1,671, which represents the 38.2% retracement level from the 2015 lows to the all-time highs in the ‘last year.

“Below $ 1,682 / 71, this would mark a significant high to mark a significant downtrend change,” analysts said in the report.