Gold Gains as the Dollar Declines

dollar bill exchange rate

Gold prices increased on Monday supported by a slight decline in the U.S. dollar. The greenback slipped 0.1% making the bullion less expensive for holders of rival currencies. Market participants lowered expectations for a 100-basis-point rate hike in July.

Spot gold is currently trading at $1,718.36 per ounce as of 0801 GMT.

Stephen Innes, a managing partner at SPI Asset Management, noted that the market has already priced in the Federal Reserve’s hawkish turn. Traders abandoned the idea of a 100-bp hike after the University of Michigan’s survey showed softer inflation. The survey showed that consumers see an inflation rate of 2.8% over five years.

Fed officials said they plan to stick with a 75-bp interest rate increase at their July 26-27 meeting. The inflation outlook among consumers improved and reduced the urgency for a larger rate hike. Still, St. Louis Federal Reserve Bank President James Bullard suggested a rate increase of 3.75%-4.00% by the end of the year. He cited the “hot” inflation reading for June. But Atlanta Fed President Raphael Bostic warned that too aggressive hikes could undermine positive trends in the economy.

Meanwhile, the European Central Bank (ECB) is expected to raise its deposit rate by 25-bp on Thursday.  The majority of economists surveyed by Reuters supported the ECB’s decision. But others suggested the EBC abandon its negative interest rates policy and implement a 5-bp rate hike.

IMF Chief Kristalina Georgieva warned G20 countries to take urgent action to control inflation. She sees an “exceptionally uncertain” global outlook. Georgieva cited the impact of Russia’s invasion of Ukraine on commodity and energy prices, the renewed supply chain bottlenecks and pandemic-related disruptions.

On the technical front, FXStreet senior analyst Dhwani Mehta suggested that the gold price could extend its recovery an $1,698. But the bullion could face stiff resistance at $1,730. She mentioned that the Relative Strength Index maintains its recovery mode, indicating upside potential.

The gold price chart confirmed a falling wedge breakout after the bullion breached the descending trendline resistance at $1,703. In that context, Mehta sees immediate resistance at $1,717. On the downside, she sees a retest of the wedge resistance at $1,694. A close below that could push gold down to $1,698.

In physical trading, lower gold prices reinvigorated the demand in India. However, the record depreciation of the rupee limited jeweler’s purchases. In China, consumers remain cautious as economic growth slowed down in the second quarter due to lockdowns.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, fell 0.26% to 1,014.28 tons on Friday.