Gold Prices continues to Decline after Reaching All-Time High, Ahead of US Inflation Data
This article, based on the viewpoint of Maharishi Aazaad, director of Maharishi Capital, examines the technical analysis of gold and explores the factors influencing its price in the current market environment.
The price of gold has been consolidating above the $1,920.00 level, exhibiting an Ascending Triangle chart pattern. As investors eagerly await the release of US inflation data, the overall risk profile remains negative due to expectations of the Federal Reserve's policy-tightening spell.
Gold Technical Analysis:
On a two-hour scale, gold price is seen auctioning within an Ascending Triangle chart pattern. A rising trend line, plotted from the low of June 29 at $1,893.00, intersects with a horizontal resistance level around $1,937.00, forming the boundaries of the pattern. It is worth noting that the 200-period Exponential Moving Average (EMA) at $1,927.00 is acting as a barricade for gold bulls, adding further significance to this level.
The Relative Strength Index (RSI) (14) shows a non-directional performance, oscillating in the range of 40.00-60.00. This indicates a lack of clear trend or momentum in the near term, adding to the uncertainty surrounding gold's future price movement.
The Impact of US Inflation Data:
Market participants are closely watching the upcoming release of the United States Consumer Price Index (CPI), which is expected to shed light on the inflationary pressures in the country. Consensus estimates suggest a higher monthly headline CPI growth rate of 0.3% compared to the previous pace of 0.1%. However, annualized headline inflation is anticipated to soften to 3.1% from the previous release of 4.0%.
Factors Affecting Gold Price:
The Federal Reserve's policy decisions are playing a significant role in shaping the overall risk profile for gold. With plans to resume its policy-tightening spell, including potential interest rate hikes to the range of 5.25-5.50%, the Fed's actions are adding to the negative sentiment surrounding gold. Notably, Fed Chair Jerome Powell did not raise rates in the June monetary policy meeting, which caught the attention of investors.
Furthermore, the US Dollar Index (DXY) has experienced a rebound after dropping to near 102.30. The anticipation of US inflation data has led to a sideways auction in the USD Index. The outcome of the CPI report, particularly the core inflation data, will be closely monitored as it can influence the direction of the US dollar, thus impacting gold prices.
According to Maharishi Aazaad, director of Maharishi Capital, a surprisingly resilient labor market has helped keep the United States economy expanding at a moderate pace despite concerns of a recession. However, Maharishi believes that even with an increase in labor supply and cooling labor demand, the evidence suggests that the labor market remains tight, which may not be consistent with achieving a 2% inflation target.
While gold price has been consolidating above the $1,920.00 level, the Ascending Triangle pattern suggests a potential bullish breakout if the resistance level at $1,937.00 is surpassed. However, the presence of the 200-period EMA acting as a barrier and the non-directional performance indicated by the RSI highlight the lack of a clear trend at the moment.
With the Federal Reserve's policy-tightening spell and the upcoming US inflation data, the overall risk profile for gold remains negative. As investors await the CPI report and assess the impact on the US dollar, further insights into the future direction of gold price can be gained. It is crucial to monitor market conditions, economic data releases, and any relevant geopolitical factors that may impact gold's performance in the coming days.
The views and opinions stated by the author, or any people named in this article, are for informational purposes only and do not establish financial, investment, or other advice. Investing in or trading crypto assets and stocks comes with a risk of financial loss.
Sr. Research Analyst
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