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Asset Watch
Tuesday, August 15, 2023
Bond yields and US dollar prices experienced an upswing as market expectations for a potential Federal Reserve interest rate cut within the next year decreased. The March 2024 rate cut probabilities declined from 56% to 38%, hinting to higher for longer interest rates. This suggests that investors don’t completely discount the possibility of future rate cuts however, expectations for the starting date of the rate cut cycle shifted from March to June 2024.
Gold prices were the first loser of these developments due to their inverse correlation with both dollar prices and US bond yields and as a result, the gold price neared the $1900/oz threshold. The surge of US inflation rates played a significant role in this trend, with the headline Consumer Price Index (CPI) of July climbing to 3.2% from June’s 3%. This rise was attributed to increased energy costs, the ongoing strength of the services sector, and a surge in the US Producer Price Index (PPI) from 0% in June to 0.3% in July.
Furthermore, concerns were exacerbated by the disappointing economic performance of the Chinese economy, particularly the lacklustre the Chinese real estate sector. This contributed to a fall in the market’s risk appetite leading to a decline in the Chinese yuan. Investors shifted towards the safe-haven of the US dollar in response to these circumstances.
Chart source ADSS Platform
On August 7, the gold price broke below the bullish trend line originated from the march 8 low and failed to close above the 50-day simple moving average indicating that bears were in charge. The yellow metal price fell to a multi-week low at $1902/oz yesterday and could be on the way for a test of the 1872 level. However, the support level located at 1890 should be considered.
On the other hand, a daily close above 1911 reflects bears hesitation and this may encourage bulls to rally the price towards 1933. That said, the resistance level residing at 1916 should be kept in focus.
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