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Summary: Gold prices continue to perform weakly due to the adverse factors of a strong U.S. dollar and rising U.S. Treasury yields. The possibility of further tightening of policy by the Federal Reserve has increased due to moderate consumer and producer inflation in July, putting pressure on gold prices.

Fundamentals

At the beginning of last week, the gold market faced pressure from hawkish comments by Fed members and inflation data later on Thursday and Friday. The statistical data once again pushed up interest rates, adding extra pressure on gold. Consequently, a bearish trend in gold prices has been confirmed, a trend that was uncertain at the start of last week but became more evident heading into the weekend.

Investors anticipate continued volatility in U.S. Treasury bonds, as economic uncertainties might alter the Fed's trajectory, potentially keeping rates elevated well beyond current investor expectations.

Several Fed officials have stressed that there might be more work to be done. Despite implementing the most aggressive monetary policy in forty years, inflation remains above the 2% target. The rise in long-term yields has been driven by hawkish signals from the Fed. The Fed's hawkish stance, leading to increased uncertainty, combined with new debt issuances by the federal government to address growing deficits, has exerted pressure on the bond market.

Following the decision to raise rates by 25 basis points at the July policy meeting, Fed Chairman Powell emphasized that the decision for the next meeting in September will depend on the data released over the next two months.

So far, major reports generally support speculation that the economy will remain stable in September, with slowing job growth and signs of easing inflation. However, the core Consumer Price Index (which excludes highly volatile food and energy prices and is considered a better indicator of underlying inflation pressures) still increased at an annual rate of 4.7% in July.

On Friday, the Producer Price Index also rose faster than expected, driving up yields on various term U.S. Treasury bonds and increasing pressure on the gold market.

This week, investors will closely scrutinize the release of the minutes from the Federal Open Market Committee meeting on July 25-26, seeking insights into policymakers' views on interest rate trends and any indications of dissenting opinions among them.

The upcoming annual meeting of global central bank governors in Jackson Hole, Wyoming, later this month will also be closely watched. This could provide Powell with a platform to counteract market pricing, as the Fed aims to bring the key rate down to around 4% by January 2025. The current rate range is 5.25-5.5%.

Technical Analysis

Since its drop after testing the upper boundary of the range at $1,987 on July 20th, the gold price has not witnessed any substantial rebounds. Particularly, recent declines have been consistently following the 5-day SMA, intensifying the bearish trend for investors. As the price approaches the lower range, it's also narrowing the gap with the upward-sloping 200-day SMA. The question is, could this trigger a significant rebound?

Short-term oscillation indicators suggest that the recent decline might accelerate. Specifically, the MACD has weakened further below the zero line, while the RSI is accelerating its descent toward the neutral level of 50.

If the decline widens, bears might play near the 200-day SMA before touching the four-month low at $1,892. Further downward movement could halt at the support level of $1,885 from March, which could become future resistance. However, any further decline could stop in the $1,860 range.

Alternatively, if the price bounces back from the 200-day SMA and reverses upwards, it could trigger a rebound aiming for the $1,945 range. Any further upward movement would stall within that range, followed by a continued drop to complete the test toward $1,860.

Overall, the gold price has been undergoing a recent downward correction, mainly driven by increased buying pressure on the U.S. dollar (appreciation). With the U.S. dollar nearing its upward resistance line, we anticipate a delayed rebound in the gold price. In terms of trading, buying the dips is recommended to be the primary strategy.

Trading Recommendations

Trading Direction: Long

Entry Price: 1900

Target Price: 1945

Stop Loss: 1890

Valid Until: 2023-08-28 23:55:00

Support: 1902, 1892, 1885

Resistance: 1916, 1921, 1930