Gold rally recovers as markets focus on recession

Spot gold’s recent dip below $1,700 was an exaggerated move, and gold’s move back above $1,750 is closer to its fair value. As the Fed tightening cycle draws to a close. Markets are now more focused on the threat of a recession than on a Fed rate hike. Growth is expected to continue to slow. The U.S. economy will get a lot worse before it gets better, which is good for gold.

According to data from the U.S. Commodity Futures Trading Commission (CFTC), as of the week of July 26, the net short position of fund managers in COMEX gold futures increased by 753 contracts to 10,474 contracts, the second consecutive week of net short positions, a record of more than three year high. The net long dollar position fell to $18.46 billion from $18.98 billion the prior week. Gold prices extended their rally on the back of rising open interest, opening the door for an extended rally in the near term. That said, the next notable target comes at the important hurdle of $1,800.

The U.S. economy unexpectedly contracted by 0.9% in the second quarter and declined for the second consecutive quarter, increasing the risk of an economic slowdown. Expectations that the Federal Reserve will continue to raise interest rates sharply have declined. The weakening of economic confidence has enhanced gold’s safe-haven appeal. Gold prices surged more than 1% overnight. . Phillip Streible, chief market strategist at BlueLine Futures in Chicago, said traders expected the Fed to slow the pace of interest rate hikes after the GDP data confirmed recession fears, boosting demand for gold. In response to soaring inflation, the Federal Reserve on Wednesday (July 27) raised interest rates for the second time in a row by 75 basis points. Chairman Jerome Powell said another "unusually large" rate hike at the September policy meeting may be appropriate, but a decision to do so will depend on upcoming economic data, and the Fed will not give forward guidance.

Despite two consecutive quarters of negative growth, the U.S. economy is in a transition phase, not a recession, U.S. Treasury Secretary Janet Yellen said on Thursday. Yellen insisted that the recession was "a broad-based weakening of our economy," including mass layoffs, business closures, strained household finances and a slowdown in private business activity. "That's not what we're seeing right now. Economically, jobs continue to grow, household finances remain strong, consumers are spending, and businesses are growing," she told an afternoon Treasury briefing.

The IMF on Tuesday downgraded its global growth forecast for 2022 and 2023, saying the outlook for the world economy was "dim and more uncertain". The IMF now expects the world economy to grow by 3.2% this year before slowing further to 2.9% GDP growth in 2023. The revised figures were down 0.4 and 0.7 percentage points, respectively, from their April forecasts. Affected by factors such as weaker-than-expected economic growth in the first half of 2022, declining household purchasing power and tightening monetary policy, the US GDP forecast is lowered by 1.4 percentage points to 2.3%. Meanwhile, forecasts for the euro zone were revised down by 0.2 percentage points to 2.6%.

Expectations for a rate hike by the Fed in September fell to 50 basis points from 75 basis points before the data. The Fed has raised interest rates by 225 basis points so far this year, raising the federal funds rate range from near zero to 2.25%-2.50%. It was the fastest pace of monetary policy tightening by the Fed since the 1980s. Powell said another "unusually large" rate hike at the September policy meeting could be appropriate, but a decision to do so would depend on upcoming economic data, and the Fed would not give forward guidance.

The gold daily candlestick chart shows:

The bearish momentum continued to fluctuate and fell, the low level was supported and began to reverse upwards, and the short-term low-level bullish momentum began to enter the market. The overall low-level bullish sentiment of the market was shrouded in the market. The top suppresses and focuses on the vicinity of 1807, and the low-level support focuses on the vicinity of 1725. The MACD indicator is in the bearish area and maintains a slow order. Move up, the RSI indicator is in the vicinity of the 50 equilibrium line and then moves up, as shown in the figure: