Gold Prices Still Struggling, BoE Shows Global Rates Have Further to Rise

Gold Prices Still Struggling, BoE Shows Global Rates Have Further to Rise

• It’s clear that rate rises are far from over, either outside the US or within.
• The Bank of England has just provided clear evidence that central banks have work to do.

Gold prices fell further in Asian and European hours on Thursday despite the fact that Congressional testimony from Federal Reserve Chair Jerome Powell in the previous session didn’t live up to the markets’ more hawkish expectations. The Bank of England meanwhile raised interest rates by a bigger-than-forecast margin, keeping the market under pressure.

Speaking about the Fed’s latest Monetary Policy Report to the House Financial Services Commission, Powell confined himself to repeating the message given last week, that further rate rises were a ‘pretty good guess’ if the economy continues on its present course.

The United States central bank opted to pause its long series of rate hikes this month, but the markets are fully aware that there may yet be more coming given that inflation remains well above target. Obviously, Powell hasn’t disabused them of this idea.Bbut his failure to more explicitly flag near-term rate increases has clearly surprised some investors. The US Dollar slipped broadly in the wake of his testimony, but so has gold.

The metal is of course a non-yielding asset and it tends to do better when yields elsewhere are low. Yields depend on interest rates, though, and interest rates could yet climb significantly across many major Western economies. The European Central Bank raised them again last month and looks set to do so again in July. The Bank of England hiked again on Thursday, by a chunky half-percentage-point, and will probably have to continue doing so.

Still, given plentiful economic uncertainties, from signs that Covid recovery in China is already weakening through to ongoing conflict in Ukraine and potential conflict in the South China Sea, gold’s perceived haven qualities are likely to underpin the market, as indeed is gold’s actually rather arguable position as an inflation hedge.

Analysts at Credit Suisse reportedly suggest that the current retracement may burn itself out while the market is still above $1850/ounce and may well try to get back above $2000 later this year.

Gold Prices Technical Analysis

Chart Compiled Using TradingView

The clear downtrend channel from this year’s May highs remains very much in force, with efforts by the bulls to force a period of range trade between early June’s highs of $1981.56/ounce and the more recent run of lows around $1940 seems to have failed with the last couple of sessions’ falls.

Bulls will need to crack $1952.37 to break this channel to the upside, and there seems little sign that they will muster the firepower for that in the near term. March 13’s high of $1914.of may offer some support close at hand, ahead of what will probably be a more solid prop at $1902.60. That latter level would be the second Fibonacci retracement level of the rise up to May’s peaks from the low of November 2, 2022. The first retracement gave way when $1971.80 gave way back on May 23.

The descending channel offers support lower down at $1886.95, but that is quite a long way away from the current market at current daily ranges, and a retest of that would likely mean that the bulls were in more serious difficulties.

Sentiment toward the metal is getting more bullish, with fully 72% of IG clients coming to the market from the long side now.

–By David Cottle for DailyFX