Author: Sir Amar – Technical Analyst

Gold prices tumbled during Monday’s Wall Street trading session as traders returned after processing the latest inflation data over the weekend. Last Friday, the US consumer price index (CPI) reignited fears of persistent inflation, despite the US Federal Reserve raising interest rates earlier in the year. Markets are pricing in a strong possibility of a 75-basis point rate hike on Wednesday when the FOMC rate decision is announced. According to the Wall Street Journal, the US Federal Reserve will hike interest rates by 75-basis points tomorrow, which the market immediately priced in. The market now expects rate hikes totalling 200 basis points in September.

Friday’s CPI read of 8.6% caused gold to initially react to the upside move, likely due to the asset’s appeal as an inflation hedge. However, bullion reversed these gains, and then some such as overnight index swaps and other market-based measures indicated in the data. This triggered a flurry of selling in Treasuries, particularly at the short end of the yield curve, resulting in a stronger US dollar and fuelling fears of a possible recession. Because gold is a non-interest-bearing asset, it is heavily influenced by the behaviour of the Treasury market. Simply put, real yields are interest rates on government bonds that represent inflation. The higher these interest rates are, the less attractive gold becomes for investors.

Gold prices are slightly higher in early Asia-Pacific trade after falling sharply overnight. The current move may be nothing more than a recovery rally. If so, the move lower may resume shortly. The psychological level of $1800 serves as a prominent target for the bears. A breakdown would open levels not traded since early 2022.