As economic worries continued, a dramatic dip in U.S. Treasury rates and a decline in the value of the dollar from a multi-year high helped gold futures conclude last week with gains for the first time in six weeks.
Prior to dropping to $1696.10, which was just above the market’s primary low of $1694.50 on March 30, 2021, the market had been trading flat for several days. Investor interest in the price level resulted in the daily technical closing price reversal bottom, which then gave way to a weekly closing price reversal bottom.
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Even if a bullish chart pattern appeared on Thursday, it wasn’t confirmed until Friday thanks to negative U.S. economic data.
December Comex gold futures closed at $1745.30 on Friday, an increase of $23.10 or 1.32 percent. The SPDR Gold Shares ETF (GLD), which lost $10.29 or -6.40 percent, ended the day at $160.67.
Gold prices steadied after a protracted decline caused by speculation about a significant rate increase by the US Federal Reserve on July 27. Traders decreased the likelihood that the Fed would go supersized with a full basis point rate rise.
According to CME’s FedWatch Tool, expectations for a 100 basis point rate rise by the Fed at its policy meeting were about 29 percent on Friday after rising as high as 80 percent the previous week.
The dollar weakened when the Euro rose against the dollar following an unexpected interest rate hike by the European Central Bank, in addition to the decline in Treasury rates and the significant rate increase by the Fed (ECB).
Following the announcement of additional discouraging economic statistics, worries about the U.S. economy also affected investor mood.
The U.S. PMI Composite output index, which measures activity in the manufacturing and service sectors, recorded a preliminary value of 47.5 on Friday, suggesting declining economic production. The index has not been at this point in more than two years.
In the previous session, weekly initial jobless claims increased to their highest level in eight months the week ending July 15, and a measure of factory activity declined in July, providing additional evidence that the U.S. economy is slowing as rising interest rates and high inflation reduce consumers’ purchasing power.
With the commencement of the Federal Reserve’s two-day policy meeting on July 26-27, all eyes will be on the organization this week. The decision of whether to raise interest rates by 75 basis points or the more aggressive 100 basis points will be considered by gold dealers. However, traders will certainly be keeping an eye out for statements regarding the likelihood of an economic slowdown or recession as well as what the central bank intends to do at its meeting in September.
Technically, the primary bottom around $1696.10 on March 30, 2021, should be the level to keep an eye on. We may witness a short-covering surge into at least $1798.50 to $1822.60 if buyers continue to support it. Markets have the potential to crash through their primary bottoms around $1618.00 on April 1, 2020, if sellers take it out with a lot of volume.