Daily Report – 27 July 2022

Fundamental Report: Gold markets have been very sideways during the trading session on Tuesday, as we are looking at this as a very important Federal Reserve meeting on Wednesday. It’s also worth paying close attention to the $1700 level, which is the beginning of massive support that extends down to the $1680 level. Obviously, we have recently bounced from there so it does make a certain amount of sense that we would see that level heavily defended. Gold prices closed higher for the first time in six last week as a sharp break in U.S. Treasury yields and a drop in the U.S. Dollar from a multi-year high bolstered non-yielding bullion’s safe-haven appeal as economic risks persisted. The market was trading flat for several days before plunging to $1680 last week. The price level proved to be attractive to investors, triggering the daily technical closing price reversal bottom that eventually led to a weekly closing price reversal bottom.

After a prolonged move down due to expectations of a massive rate hike by the U.S. Federal Reserve on July 27, gold prices stabilized as traders reduced the chances of the Fed going supersized with a full basis point rate hike. Expectations for a 100 basis points rate hike by the Fed at its policy meeting stood at about 29% on Friday, according to CME’s FedWatch Tool after reaching as high as 80% the week before. In addition to the drop in Treasury yields and a huge rate hike by the Fed, the dollar eased after the Euro jumped against the greenback, following a more than expected interest rate hike by the European Central Bank (ECB). Concerns over U.S. economic also put a dent in investor sentiment after the release of more downbeat economic data. On Friday, a preliminary reading on the U.S. PMI Composite output index – which tracks activity across the services and manufacturing sectors – fell to 47.5, indicating contracting economic output. It’s the index’s lowest level in more than two years.

Last week, initial jobless claims rose the week-ending July 15 to the highest in eight months, while a gauge of factory activity slumped in July, offering further indications that the U.S. economy is slowing as rising interest rates and high inflation weigh on spending power. All eyes will turn to the Federal Reserve this week with the start of a two-day policy meeting on July 26-27. Gold traders will be assessing whether the U.S. central bank will hike interest rates by 75 basis points or the more aggressive 100 basis points. There is no denying that the previous quarter was monumental for monetary policy as central bankers across the world ramped up their fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years – driven in part by the war in Ukraine, worsening supply chain disruptions and effects of COVID related shutdowns in China. Once again in the 3rd quarter of 2022, global monetary policy continues to be a dominant force driving market sentiment almost on a daily basis – And that narrative shows no signs of slowing down anytime soon. However, traders will all be watching for comments about the chances of an economic slowdown or a recession, and what the central bank plans to do at its September meeting.