Gold (XAU/USD) Spot at 16-Month Lows; US Inflation and Recession in Focus

Jul 14, 2022

The spot gold prices remain depressed around 16-month lows as the spot price reached $1727 during early Thursday Asian Session. The main reason for such drop could be linked to the possibility of a higher inflation and US Fed’s move to raise interest rates to control inflation.

The yellow metal prices bounced of 11-month lows during the Wednesday US session when the CPI numbers came in at 1.3% way above the expected figure of 1.1%. Post the release there was a big bounce in gold prices but market sentiment of higher interest rates stopped the XAU/USD pair from making any further gains. Along with inflation fears, a hawkish approach from Bank of Canada also added more pressure to the yellow metal as the Canadian central bank raised its interest rates by 100 bps as compared to a market expectation of 75bps. The overall trend right now is in favor of the bears as the commodity remains pressured.

On the economic calendar there is a significant release on Friday which is the US Core Retail Sales. The number can turn market sentiment based on the release. Apart from that there is an Unemployment Claim data due to Release during the Thursday US session. Looking at the data releases from Asia, GDP figures from China are set to be out which would provide a clear picture on the recession bets by market participants.

Technically looking at the weekly chart, it can be seen that the pair has bounced off the $1700 support amidst oversold RSI conditions. Along with that as of writing the yellow metal is holding off the immediate $1722 support currently trading at $1732 level. In case the $1700 support fails to hold bears will look towards previous year’s low at $1676 which cannot be ruled out at the moment. On the contrary any recovery needs validation above the Fibonacci 78.6% level of $1760 to pose a retracement and a change in trend. Currently a close above the support coupled with highly oversold RSI conditions can assist a pullback but the overall trend is expected to remain bearish.