Daily Report – 07 July 2022

Fundamental Report: The Gold prices are edging lower on Wednesday, testing their lowest level since late December, following a more than 2% plunge the previous session. Despite the early setback, volume is on the light side as traders await key economic data as well as the release of the minutes of the U.S. Federal Reserve’s last monetary policy meeting. At 11:08 GMT, gold was trading $1756, down $6.60 or -0.22%. The SPDR Gold Shares ETF (GLD) settled at $164.74, down $3.58 or -2.13%. The dollar has gained significant value over the last two weeks, however, longer term studies reveal that the dollar has been on an upward trajectory since the beginning of 2021 when the dollar index was fixed at 90. The dollar index compares the U.S. dollar to a basket of six major currencies. Today the dollar index gained 1.34% a total of 1.406 points and is currently fixed at 106.315. Although dollar strength has been growing over the last two years recently dollar strength accelerated satrting in March when the Federal Reserve began to raise interest rates for the first time since 2018. Since the March interest rate hike of ¼%, the Federal Reserve has raised its Fed Funds Rates from near zero to 1.5% – 1.75%. Over the last three FOMC meetings the Federal Reserve has raised its fed funds rate first by 25 basis points in March, 50 basis points in May, and 75 basis points in June. It is also anticipated that the Federal Reserve will raise rates another 75 basis points during the FOMC meeting at the end of this month. The rate hikes by the Federal Reserve have been in response to exceedingly high levels of inflation which continue to run at a 40-year high.

The latest data from the U.S. government indicates that the CPI was at 8.3% in May. Just as alarming is the most recent economic data from Europe with the May 2022 Consumer Price Index for the Eurozone now fixed at 8.8% YoY. It has been rising interest rates that have been highly supportive of the dollar taking it to a 20-year high today. During the week of June 27, the dollar index opened just under 104 and has gained over 2% in the last six trading sessions. Based on the recent breakout in the dollar, our technical studies indicate that the next level of resistance does not occur until 107.467. Furthermore, it shows that major resistance on a technical level occurs at 112.95. Fears of an inevitable recession based upon rising interest rates have fueled not only dollar strength but also selling pressure in gold on top of that. Collectively, these two forces have moved gold $300 lower from its yearly high in March of $2078 which is a price decline of 15.158%.

Gains are also being capped by a rise in the benchmark U.S. 10-year Treasury yield and a steady U.S. Dollar. Higher rates make non-yielding gold a less-desirable investment, while a stronger greenback tends to weigh on foreign demand for dollar-denominated gold. Gold traders will be eyeing Friday’s U.S. Non-Farm Payrolls report this week. Government data on employment will give investors a small look at the strength of the labor market after 150 basis points of rate increases already delivered by the Fed. A weaker-than-expected jobs report could increase concerns of a potential recession. Although cheap prices are attracting some bargain hunters, most traders are more interested in the direction of U.S. interest rates and the U.S. Dollar. The Federal Reserve is controlling the overall direction of interest rates. It is expected to keep the upside pressure on rates in order to drive inflation lower. This is the primary factor weighing on gold prices. Increasing fears of a recession, however, are driving investors into the safe-haven U.S. Treasurys and the U.S. Dollar. The strong greenback is another reason for the drop in gold prices.