The price of gold has been under pressure in recent weeks as the Federal Reserve takes a more aggressive tone on interest rates.
Bullion prices have slumped from a recent rally to the $1,800 mark, and the precious metal now faces a very important crossroads with its latest dip below $1,700. This level has been providing support in gold since early-2021 and we should expect the next medium-term path to emerge.
Weekly XAUUSD Chart
The bulls were able to create a close above the $1,700 level, and the week ahead will be important.
Gold investors have been scratching their heads as the metal is seen as a store of value in uncertain times and can also be used as an inflation hedge. However, the push for higher interest rates leaves gold vulnerable as it does not provide any yield.
The US dollar has been another factor, with the greenback attracting investor interest due to better returns on bonds. The dollar index rose to its highest level in 20 years last week, after economic data showed US manufacturing and employment increasing.
Nonfarm payrolls increased by 315k, exceeding expectations of 300k. The unemployment rate was higher at 3.7% versus 3.5% expected. However, this could’ve been caused by a higher participation rate. Some analysts are expecting a 75-basis point rate hike from the Fed at its next meeting in September. A US dollar correction would boost gold prices if inflation cools.
Stability in the economy gives the Federal Reserve a green light to raise rates further. Industrial metals were also lower, with platinum down 2.4% and palladium down 3.5%. These metals are hurting due to the risk of a recession and its effects on businesses.
Factory activity has fallen in Asia due to China’s zero-COVID strategy lockdowns. On Sunday, the country announced an extended lockdown in districts of Chengdu and will promote mass testing in the nation’s sixth-largest city.
