The gold market fluctuates at a low level with the Fed's interest rate meeting imminent

A weaker risk tone provided some support for safe-haven gold. The stock market's recent rally lost momentum fairly quickly against the backdrop of a deteriorating global economic outlook and heightened recession fears. Investors remain concerned that rapidly rising interest rates and the Russia-Ukraine conflict will challenge global growth, which in turn dampens investor appetite for riskier assets.

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Weakening expectations of Fed rate hikes put pressure on the U.S. dollar index. The U.S. dollar index has recently retreated as traders cut their bets on an aggressive 100 basis point rate hike by the Federal Reserve in July. Fed policymakers signaled on Friday that they may hold on to raising rates by 75 basis points at their July 26-27 meeting, but recent high inflation readings suggest a larger rate hike may be needed later this year.

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The outlook for gold prices remains bearish. The Fed will hold a policy meeting, where policymakers are expected to raise rates by 75 basis points. Bank of England Governor Bailey delivered hawkish remarks overnight, saying the central bank's priority was to bring inflation down to 2%. It also raised the odds of a 50bps rate hike by the Bank of England in August, and on top of that, Russia's resumption of gas supplies via the Nord Stream 1 pipeline helped ease fears of a possible recession and boosted Investor confidence weakened and demand for traditional safe-haven assets weakened.

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Gold has been consolidating around $1,700 an ounce in recent days, a possible sign that the market's bearish momentum has passed. Gold has held just below the key technical limit of $1,700 an ounce and could see a bullish correction in the near term. If it can hold $1,700 as support, gold prices are still likely to return to highs above $2,000. If gold breaks $1,850, it will be a signal that another surge is likely.

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The role of gold in the Russian economy is crucial. The precious metal is Russia's largest non-energy export. In 2021 alone, the Russian Federation exported more than 302 tons of gold (valued at $17.4 billion to $20 billion), according to the Russian Federal Customs Service. Importantly, the UK took the lead in imposing sanctions on Russian gold in March 2022, buying 266 tonnes of gold itself worth $15.4 billion. The partial international embargo on Russian gold has had some notable results: Petropavlovsk, Russia’s main gold producer, which used to produce 14 tonnes of gold a year, mostly in deposits in the Far East, has filed for receivership and is unable to repay its loans.

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According to data from the U.S. Commodity Futures Trading Commission (CFTC), as of the week of July 22, fund managers’ net long positions in COMEX gold decreased by 12,469 contracts, and their net positions turned into 9,721 net short contracts; at the same time, short positions increased by 11,364 contracts. , to 97802. For the first time since May 2019, speculative positions in gold turned into a net short position of 6,133 contracts.

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Spot gold rose about 1.03% this week, which was the first weekly rise in gold prices after five consecutive weeks of declines. The European Central Bank raised interest rates for the first time in 11 years. The move gave fresh momentum to the euro against the dollar, weighing on the greenback and pushing gold back above $1,700 an ounce.

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The European Central Bank unexpectedly raised interest rates by 50BP in July to cope with high inflation, but the probability of the Fed raising interest rates by 75BP in July meeting is still higher than the expectation of raising interest rates by 100BP. In the medium and long term, the expected tightening of central bank policies in Europe and the United States will have a negative impact on precious metals, and the panic caused by the weakness of bulk commodities will also drag down the precious metals market. The increase in demand will slow down the decline of gold, and the allocation value of gold is still higher than that of other commodities; silver continues to be weaker than gold due to the economic recession and the weakening of the non-ferrous sector.

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The bearish momentum continues to decline and the trend is good. The low level is supported in the short term and moves up. The bullish momentum is waiting for an opportunity to enter the market. The top suppresses and focuses on the vicinity of 1770, and the low-level support pays attention to the vicinity of 1675. The MACD indicator is in the short area and the low level is finishing and moving, and the RSI indicator is maintained in the short area. Finishing up slowly, as shown in the figure:

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[Disclaimer] This article only represents the author's own point of view and does not constitute any investment advice. Please read it for reference only, and bear all risks and responsibilities.