Last week gold witnessed a series of whipsaws as traders are being dependent on US data releases. Gold swung into action in the range of 1900-1950 $.
Gold was little changed on Monday as investors awaited U.S. inflation data that could influence the Federal Reserve’s policy stance,
The Labor Department’s employment report on Friday showed the U.S. economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labor market conditions.
Bullion prices have dropped more than 7% since reaching near-record levels in early May as investors scaled back expectations of an end to the Fed’s rate-hiking cycle.
Gold prices edged higher on Tuesday as the dollar and bond yields fell ahead of U.S. inflation data that could offer more cues on the Federal Reserve’s rate-hike path.
Longer-dated U.S. Treasury yields fell on Tuesday as investors awaited Wednesday’s inflation data for further clues on whether price pressures are abating and if the Fed is closer to the end of its rate-hiking cycle.
Sticky inflation is widely expected to attract more rate hikes from the Fed, with the central bank set to raise rates by at least 25 basis points in an end-July meeting.
Higher interest rates dull the appeal of gold, which pays no interest
Recent comments from Fed officials reiterated that while the central bank was close to reaching its peak interest rates, interest rates will still rise in the near term. U.S. rates are also expected to remain higher for longer.
While the prospect of an eventual end to the Fed’s rate hike cycle buoyed gold, higher-for-longer rates are expected to keep any further gains in the yellow metal limited, given that they increase the opportunity cost of holding bullion.
We favor the downside in gold and silver but suggest traders avoid selling palladium. However, the control of the precious metal markets sits with outside markets, with the dominating force determined by which market (dollar or US interest rates) exhibits the biggest price moves.
The focus this week will be on U.S. CPI (Consumer Price Index) data due on Wednesday after last week’s Fed minutes showed a vast majority of the policymakers expected further policy tightening. There is a massive eye on tomorrow’s inflation data – it comes too late in the day for the July meeting. That hike is basically sealed and it would take something pretty weak on the inflation side to change that.