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Asset Watch
Tuesday, July 25, 2023
The first session of the week saw a decline in the gold value due to a rise in the US dollar price. This was attributed to the US manufacturing PMI performing better than expected (49 vs 46.4). On the other hand, the service sector PMI remained above 50. These positive figures improved the outlook of the US GDP in Q3 and suggesting lower probabilities of a recession.
The Fed monetary policy will be key to determine whether the US economy will avoid recession or at least make it shallow. Therefore, if the FOMC members opt to hike rates to 5.75% by the end of the year this action increases the recession probabilities. Conversely, if they decide to hike rates by 25 bp in this meeting and end the rate hike cycle then the recession probabilities decrease at least until the Fed normalizes its policy and cut rates towards neutral levels.
The Fed is likely to hike 25 bp this meeting while keeping the door open for a potential further rate hike (even if the FOMC members have no intention to hike rates) to maintain a stronger US dollar price.
Chart source ADSS Platform
On July 12 the gold started a bullish trend creating higher highs with higher lows. The price printed a multi-week high at $1987/oz then retreated on profit taking operations.
Currently, the price moves within the trading zone 1949-1974 hence, a daily close below the low end of the zone could encourage traders to send the price even lower towards 1916. That said, the support level located at 1933 should be considered.
On the other hand, a daily close above the high end of the zone may entice some traders to rally the price towards the $2000 handle. However, the resistance level residing at 1981 should be kept in focus.
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