Gold prices rose on Thursday, reaching $1,756.64, despite attempts by the US currency to recover. Bond rates are still in the red, nevertheless, as a result of the Federal Reserve’s dovish stance on Wednesday. As of the time of writing, the XAU/USD currency pair is 1.25 percent higher after rising from a low of $1,734.18 to the day’s high of $1,757.06.
The poor US GDP figures that added to the dovish feeling surrounding the path of rate rise expectations from the Fed on Thursday proved to be excellent news for US markets, which have extended their upward bounce. The US GDP for the second quarter was lower than anticipated, falling by 0.9 percent in SAAR terms (exp: +0.4 percent, prev: -1.6 percent). Although this legally qualifies as a recession since it has had two consecutive quarters of negative growth, experts at ANZ bank contend that the specifics were really a touch better than the headline figure implies.
“Inventories took away 2 percent points from the headline number, which accounted for a large portion of the decline. Although personal consumption growth was healthy, growing by 1%, it fell short of forecasts (exp: 1.2 percent , prev: 1.8 percent ). Private fixed investment was subpar, falling by 3.9%. ” However, even after taking into consideration the disproportionate impact of the inventory number, the analysts claim that “all in all,” the report was disappointing (which the Fed may be inclined to disregard as noise). This will only increase market jitters over a decline in US economic growth.
Initial Claims, at 256k, were “weaker than predicted,” according to the experts. But it happened after the amount from the previous week was raised. Overall, claims are still at levels that are too low to indicate that the labor market would soon deteriorate, which is a necessary component of a fundamental US recession.
The US dollar increased after the data, but later in the session the bears entered, and the DXY is now trading at the day’s lows. From a top of 106.975 to a low of 106.059, DXY has decreased. Bond rates did, however, decline, which is good for gold because it has no interest. Last saw paying as little as 2.649 percent on the US 10-year note, down by more than 3.8 percent.
Analysts at TD Securities said that the threshold for CTA short covering in gold is lowering. Given the weakening trend in the data, Chair Powell’s forward guidance setting a high bar for another “unusually substantial” 75bp raise put a stop to another jumbo-sized move and authorized a brief squeeze in risk assets linked to a pervasively negative mood.
Given that prices just need to close north of $1780/oz to shift trend signals, the analysts said that “when a short covering rally occurs across global markets, the possibility for a CTA buying program in gold has increased.”
Prop traders, who still hold the title of the largest speculative force in gold, continue to hold a significant amount of complacent length in the gold markets, according to experts.
The fact that gold has not yet capitulated suggests that the pain trade still lies to the downside and that the recent surge will eventually falter when confronted with a sea of offers.