Gold prices refreshed session lows as a corrective pullback from the annual bottom reversed course. Yields point to slowing economy after CPI surged to 40-year high. This negative sentiment supports demand for the U.S. dollar. According to market analyst Anil Panchal, U.S. risk catalysts may please gold traders. But in the midst of inflation and recession woes, the bears are taking control.
Yield curve inversion floods gold prices
The precious metal is struggling to digest U.S. inflation data amid mixed comments from the market. It recovered from its lowest level of the year the previous day. However, it was followed by a hawkish Federal Reserve speech and a Bank of Canada (BOC) interest rate hike of 100 basis points (bps). Analysts noted that these developments paved the way for a golden bear on Thursday. Analysts made the following assessment:
Basically, the key U.S. Treasury yield curve is inverted between the U.S. 2-year and 10-year Treasury bond coupons. This reflects concerns about an economic recession and puts pressure on gold prices.
The U.S. 10-year Treasury note yield recently rose 4 basis points (bps) to 2.95%. However, its 2-year equivalent has risen to 3.18% at press time. The yield curve shows a 23 basis point inversion between the major bond coupons mentioned above. This also indicates the market's concerns about an economic slowdown.
Biden failed to tame U.S. inflation concerns
As you know by following Liu Bingming , the U.S. CPI rose to 9.1% year-on-year in June. This rate is the highest in 40 years. However, core CPI, which excludes volatile food and energy prices, fell to 5.9% from 6% previously. However, it beat analysts' expectations of 5.8%.
Following the US data, White House (WH) Economic Advisor Brian Deese issued a statement to CNBC. He said that CPI data showed that Congress urgently needs to pass legislation to encourage semiconductor manufacturing in the United States. On the other hand, US President Biden said that as the price of natural gas fell, the CPI data was "insufficient."
The Bank of Canada is also backing the Golden Bears
The Bank of Canada (BOC) raised its policy rate by 100 basis points to 2.5% in June. An increase of 75 basis points is expected. "With the economy clearly experiencing excess demand, inflation remaining high and expanding, and more and more businesses and consumers expecting hyperinflation to last longer, the Governing Council has decided to raise interest rates ahead of schedule," Bank of China statement say.
U.S. Dollar Index Submerged Gold Prices
The U.S. Dollar Index (DXY) changed the two-day downward trend, rising 0.32% on the day to near 108.40. This justifies four decades of high inflation figures. Additionally, DXY continues to weigh on gold prices. Analysts say the recent rise in DXY may also be related to concerns about a global economic slowdown and further pessimism surrounding Europe.
Falcon Fedspeak Prefer Bears
Fed policymakers have recently opted for a hawkish bias in the market while tracking the highest U.S. inflation data in 40 years. Recently, San Francisco Federal Reserve Bank President Mary Daly said her most likely stance would be a 75 basis point rate hike in July. But he noted that an increase of 100 basis points is also possible, according to New York Times .
Prior to this, Richmond Federal Reserve Chairman Thomas Barkin expressed support for raising interest rates at the last meeting. Cleveland Fed President Loretta Mester said: "The CPI data does not indicate a smaller rate hike in July than in June."
Gold price technical view
Market analyst Anil Panchal's explanation of the gold price technical outlook is as follows . Gold prices have failed to extend a corrective pullback from an upward sloping support line since March 2021. To that end, it will bottom out in late 2021. However, it is worth noting that the oversold condition of the RSI is bottoming out.
However, the $1,700 threshold may act as an additional downside filter beyond the aforementioned $1,709 support line to limit short-term losses for the precious metal.Once the gold bears contain the $1,700 mark, a southward move to last year’s low of $1,676 cannot be ruled out.
Conversely, a recovery from the 78.6% Fibonacci retracement level in March 2021 into March 2022 would need to be confirmed near $1,760. Until then, the December 2021 lows near $1,753 may limit a sudden recovery. Even if prices break above $1,760, gold buyers will seek confirmation of the May low of $1,786 before regaining control.
