The decline in US inflation rates, stronger than expected, negatively affected the path of expectations of raising US interest rates in the coming months. Yesterday’s numbers caused the US dollar to decline, and therefore the XAU/USD gold price had the strongest opportunity to rebound higher with gains to the resistance level of 1807 dollars per ounce, the highest for the price of gold in more than a month. The price of gold XAU/USD is stable around the level of 1786 dollars an ounce at the time of writing the analysis.
Stock Market Analysis
Stock markets extended their rally Thursday after weaker-than-expected US inflation data fueled speculation that the Federal Reserve may switch to a slower pace of interest rate hikes. Accordingly, the European Stoxx 600 Index advanced for a second day, after rising to a two-month high after the CPI report, with technology and construction stocks outperforming. US futures rose after the S&P 500 reached a three-month high and the Nasdaq 100 pulled back 20% above its June low.
Technology stocks fueled a 1% rally in the Asian stock index. China’s bourses advanced even as investors digested its central bank’s warning about inflation threats and vowed to avoid massive stimulus.
The price of the US dollar stabilized after the previous day’s decline, which was the largest since the beginning of the epidemic. Short-term Treasury yields were lowered as investors’ expectations of how aggressively the Federal Reserve would be able to tighten monetary policy. According to official figures, the headline inflation rate in the United States reached 8.5% in July, down from June’s reading of 9.1% which was the largest in four decades. Price pressures remain severe and Fed officials were quick to stress that more US interest rate hikes are on the way. They also indicated that investors should rethink expectations for cuts next year to support economic growth.
The question is whether the recovery in global stocks and other riskier investments from this year’s defeat can continue against this backdrop.
According to US Central Bank officials:
Minneapolis Fed President Neil Kashkari said he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and 4.4% by the end of 2023. Referring to market pricing of the Fed’s policy trajectory, Kashkari said it’s not realistic to conclude The Federal Reserve will start cutting US interest rates early next year when inflation is very likely to exceed the 2% target.
For his part, Charles Evans, his counterpart in Chicago, said that inflation remains “unacceptably high” and that “we will increase rates the rest of this year and into next.”
Swaps pointing to the September Fed meeting brought the US interest rate back by half a point again in exchange for a larger move. A major part of the Treasury yield curve remains deeply inverted, a pattern widely believed to indicate the risk of a recession.
XAU/USD Gold Price Forecast Today:
- The stability of the gold price will remain above the psychological resistance of 1800 dollars an ounce, supporting the bulls’ control over the direction of gold.
- It will support the price movement towards stronger ascending levels, and the next. If this occurs, it will be the resistance levels of 1818 and 1832 dollars, respectively.
- The movement of the XAU/USD gold price below the support level of 1770 dollars an ounce will have an important impetus for the bears’ move, and in general, I still prefer buying gold from every descending level.
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