The Fed rate increase bets had a dovish reaction to Jerome Powell’s remarks. Early in 2023, the Fed’s policy reaction is anticipated to ease, and rate increases are anticipated by the FOMC meeting that will be held in May 2023.
Notwithstanding the overnight increase in interest rates of 75 basis points, market-based inflation predictions increased. The US 2-year breakeven rate increased over 3.18% as shown by the gap among the 2-year nominal and inflation-indexed yields.
Many investors use gold as a hedge against inflation, which accounts for the upward price movement, furthermore reinforcing the idea that gold may hedge against inflation are rising buyer expectations. The average one-year-ahead inflation estimate for June increased to 6.8% from 6.6% in May, according to the Federal Reserve Bank of New York’s survey of consumer estimates.
An impending possible concern for the price of gold is the Q2 GDP growth rate in the US according to the advance estimate. Analysts anticipate that the second quarter of GDP will come in at a quarter-over-quarter rate of 0.5%. A failure might increase risk aversion, resulting in the US Dollar becoming stronger. That might make gold subjected to additional pressure. A poor figure, though, might make the Fed’s rate hike route more difficult.
But gold’s reaction to the incident could cause some price movements. The June personal consumption expenditures price index (PCE) is expected to have increased by 4.7% YoY later in the week. That would be consistent with the 4.7% YoY print from June. Following traders’ pricing in a more straightforward Fed rate hike path, gold’s response would hinge on how markets factor in that information.
After a break over the 23.6% Fibonacci retracement level and a crossing well above 20-day Simple Moving Average (SMA), gold’s technical position strengthened. The MACD and RSI indicators are on course to cross over their midpoints, a positive indication, during this time. In the days to come, bulls can try to raise the price beyond the 38.2% Fib at 1756.81. If prices stay over the level, a retracement to the 23.6 % Fib is also possible, and it would be bullish.