Gold prices fell on Wednesday to a more than nine-month trough ahead of the release of U.S. inflation data for June. The dollar steadied near a 20-year peak, which made the bullion more expensive for holders of rival currencies. In addition, the benchmark U.S. 10-year Treasury yields rose and dampened the demand for the zero-yielding metal.
Spot gold is currently trading at $1,725.13 per ounce as of 0740 GMT.
Economists predicted June Consumer Price Index (CPI) to increase by 1.1% and 8.8% on a monthly and annual basis, respectively. The CPI data could boost investors’ expectations for a 75-basis-point rate as the Federal Reserve seeks to control inflation. The situation negatively affects gold prices. Although the bullion is considered an inflation hedge, investors move away from it when interest rates are high.
Stephen Innes, the managing partner at SPI Asset Management, commented that gold is in a difficult position since the market is expecting a high rate hike in July. But if June CPI shows that inflation has peaked, it could provide some support for the yellow metal.
DailyFX senior strategist Christopher Vecchio predicted that gold prices would continue to edge lower due to a weak technical and fundamental backdrop. The 5-, 8-, 13- and 21-EMA envelopes are in bearish sequential order. Also, the daily MACD has fallen way below the signal line and the daily Slow Stochastics are in oversold territory.
Vecchio also noted that the gold volatility continues to decline. It does not bode well for prices since the bullion tends to benefit during periods of higher volatility. If the yellow metal breaks out of the symmetrical triangle, it could drop to $1,680 over the coming weeks.
FXStreet analysis Anil Panchal added that the recent movement in gold prices reflects market indecision. The bullion’s technical outlook indicates a corrective pullback. But the fundamentals are not in favor of gold.
Panchal predicted the bullion to drop to $1,708 if it breaks the horizontal support at the $1,720-$1,725 zone. A daily close below $1,708 could send gold further down to $1,700 and then to $1,676. On the upside, the metal needs to climb to $1,755 to make a meaningful recovery. The next resistance level is near $1,828.
In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, fell 0.17% to 1,021.53 tons on Monday.