Books – Islam Saeed Sunday, July 23, 2023 01:00 AM
Gold prices closed higher for the third week in a row, despite the decline that dominated the movement of gold during the second half of the week due to the recovery of the dollar. The ounce rose during spot trading by 0.4%, after recording during the week the highest level in 9 weeks at $1987 an ounce, to close the week’s trading at the level of $1961 an ounce.
The technical report of Gold Billion revealed the main reason behind the significant rise in gold prices during the past week, as US retail sales data for the month of June revealed an increase of 0.2%, less than expectations and the previous reading at 0.5%, which indicates a decline in consumer spending and the beginning of the emergence of the negative impact of US interest rate hikes on spending levels.
The June jobs report as well as last week’s retail sales and inflation data greatly increased expectations in the markets that the Federal Reserve will resort to halting the rate hike cycle after its next meeting.
The Gold Billion report indicated that the gold market is awaiting the results of the meetings of the Federal Reserve, the European Central Bank and the Central Bank of Japan, in addition to the data of the core personal consumption expenditures index for the United States, which is the preferred measure of inflation for the Federal Bank.
Expectations indicate in the markets that there is a possibility of up to 100% that the Federal Reserve will raise interest rates by 25 basis points before stopping the cycle of raising interest and monetary tightening, which the bank did not announce before, so that the markets await the bank’s report and the press conference of its president to resolve these expectations.
Inflation data during the month of June in the United States showed a sharp slowdown in inflation, as the consumer price index rose by 3%, which is the slowest pace of inflation in two years, and the core CPI, which excludes volatile food and energy prices, increased by 4.8%, which is the slowest rise since 2021.
The noticeable decrease in inflation and the expected gradual decline in the labor market during the second half of the year may convince the Federal Reserve to raise interest rates once during its next meeting and end monetary tightening during the second half of the year.
The Federal Bank indicated on more than one occasion that its decisions will depend on data, and that the US economy is able to overcome this crisis without falling into an economic recession, and in light of the data that shows a slowdown in growth rates and consumer spending, and the bank may end the tightening policies that have continued since last year and pushed interest rates to their highest levels in more than 15 years, and this scenario greatly supports gold, because the first enemy of gold is raising interest that attracts investments away from gold markets that do not provide a return in favor of bond markets that offer a return that rises with high interest rates.
Gold will face an important week that may affect its movements in the short term, as the Fed’s adherence to the monetary tightening policy may push gold to decline significantly, and the bank’s cessation of tightening and ending the interest rate hike cycle may push gold to continue the rise and surpass the psychological level of $2000 an ounce.
As for the US dollar, it witnessed an awakening during the ending week. According to the dollar index, which measures its performance against a basket of 6 major currencies, the dollar rose during the week by 1.2%, to close above the level of 100 points, after it recorded its lowest level since April 2022.
The recovery of the dollar contributed to pushing gold prices down from the levels of 1980 dollars an ounce in light of the inverse relationship between them, as gold is a commodity priced in dollars, and the rise of the dollar makes gold cheap for holders of other currencies.
It is expected that the dollar will continue to recover during the coming period, due to the slowdown that began to appear in the growth and spending data in the United States, which may increase the demand for the dollar as a safe haven for investors to resort to in times of economic slowdown.
2023-07-22 22:00:00
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