Gold price rebound could fail as top central bankers sound

GOLD (XAU / USD) WEEKLY OVERVIEW: BEARS

• Gold prices the 4-week series of losses has stopped as worries about the recession increase
• Markets have translated growth fears into colder interest rate forecasts
• Hawk tone from the Fed, other top politicians may restart the sell-off

Gold prices stopped at a four-week loss-making trend, managing to close on a high note after touching the lowest level since January. The rebound in the last half of last week was triggered by fears of a recession amid fears that fuzzy inflation is eating away at the most important driver of economic growth: household consumption.

The guide from retail giant Target suggested what was perhaps the most compelling headline that unfolded the story. He stressed that rising prices are reducing demand, and said he will have to give up part of his margin to help isolate consumers from increased resource costs and save their profits.

The decline in demand at the retail level is already happening, doubly alarming because the Federal Reserve is still in the early stages of an ambitious tightening cycle designed to drive up prices. It has already risen by 50 basis points (basis points), and markets expect another 200 bps by the end of the year.

This will almost certainly cool the growth further. Indeed, Fed Chairman Jerome Powell reiterated that overcoming inflation was a top priority for the U.S. central bank last week. He acknowledged that this could push interest rates above a “neutral” level if they start squeezing growth, and said unemployment growth could be at stake.

Daily gold price chart created withTradingView

Gold has been able to make money on this story because it does not make a profit for its owners. Markets have shifted fears of a recession to colder interest rate forecasts, which has helped boost the relative attractiveness of bullion. The yield curve is broadly flat, with a slight inversion at the long end (spread of 5- and 10-year Treasury bonds).

THE GOLDEN GOLD CAN BE RENEWED IF THE CENTRAL BANKERS VISIT

However, the fate of the yellow metal last week may be fleeting. While incoming PMI data from the world’s leading economies is likely to reflect a broad slowdown, the steady stream of comments from central central bankers is likely to reaffirm the priority in the fight against inflation.

The Fed will publish minutes from the latter FOMC at the meeting, and should be addressed by a number of officials, including Chairman Powell. Comments from ECB President Lagarde and Bank of Japan Governor Kuroda are also accepted. RBNZ intends to raise rates by another 50 bps, and Governor Orr will hold a press conference thereafter.

GOLD TRADING RESOURCES

— Written by Ilya Spivak, Chief Strategist, APAC for DailyFX

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