Gold price lost 1.32% last week, ending the fifth consecutive week in negative territory. The crypto market, on the other hand, made a new recovery move under the leadership of Bitcoin. In particular, the leading altcoin Ethereum delighted its investors with an increase of about 15% on a weekly basis. We have compiled the developments that will affect gold and crypto money prices in the coming weeks, our readers.
Gold and crypto market awaits interest rate decision from FOMC
As you follow on Kriptokoin.com, the dollar index reached its highest level in 20 years last week. Spot gold price fell to its lowest level in a year. In the international spot market, the precious metal hit an intraday low of $1,697 in the Friday session. It later recovered and closed at $1,706. In the crypto market, there was a spring mood. While Bitcoin climbed above $21,000, Ethereum surpassed $1,300 with a 15% rally.
However, the expectation of the Fed’s rate hike at the next meeting is putting pressure on gold and cryptocurrencies. Fear of a recession reduced the demand for the safe-haven gold. Demand for both physical and electronic gold has fallen. Also, analysts expect the trend to continue for a few more sessions until the dollar index makes a sharp correction from its 20-year high of 109.30.
The most important factors that will affect the gold price in the short run
Dollar index (DXY): Key driver for gold prices
Sugandha Sachdeva, Vice President of Commodity and Currency Research at Religare Broking Ltd. comments:
The most important element that could dictate gold prices in the near term will be the DXY move, which is a spectacular one-way move to the upside. Any cooling in DXY will lead to some relief in gold prices. On the contrary, a sustained increase above 109.50 will mean more pressure on gold prices.
ECB meeting: One of the key events of the week ahead
According to Sugandha Sachdeva, markets will focus on the ECB policy decision, the key event lined up for next week, when the ECB is expected to raise interest rates for the first time since 2011, given concerns over inflation expectations. Sachdeva goes on to explain:
However, the Eurozone is facing an acute energy crisis that has led to a downward revision in its growth outlook. We’ll see how the ECB strikes a balance.
US manufacturing and services PMI data: Will affect base metals
Markets expect this trigger to keep the volatility of gold price stable. Possible direct effect on base metals. However, it will affect the dollar index, which is the main trigger for the yellow metal these days. Anuj Gupta, IIFL Securities Vice President of Research, comments:
US manufacturing and services PMI data will mainly affect base metals. But any positive statement is expected to boost the dollar index, which is the main dictator of the gold price action these days. Therefore, gold investors and traders need to pay attention to this.
China crisis: easing in demand will negatively affect yellow metal
The Evergrande crisis in China has taken a huge toll on the dragon nation’s real estate industry. Now, after increasing Covid cases and slowing demand in China, it will also be reflected in gold prices. Anuj Gupta of IIFL Securities says:
China is the largest importer of crude oil and gold. The relaxation in demand will negatively affect the yellow metal.
Weekly economic and financial comments
The Welss Fargo research team interprets the effects of economic and financial developments on the markets.
USA: This party is falling apart fast
Slowdown signals start flashing between sectors. Business and consumer sentiment decreased. Real consumer spending weakened. Housing activities ceased. In response, business investment is downshifting. On the other hand, strong employment growth and solid gross domestic income indicate that we are not yet in the hole.
International: Bank of Canada makes a big increase
UK GDP registered an increase in May. However, some cracks in the economy are starting to show, especially in the consumer sector. Elsewhere in the G10, the Bank of Canada raised a super 100 basis points at its monetary policy meeting in July. The bank brought the policy rate to 2.50% and signaled further rate hikes.
Rate monitoring: Asset inflation is already undercut
The Federal Reserve continues to reduce its holdings on the balance sheet of Treasury and mortgage-backed securities (MBS), accelerating the pace of September’s decline. However, it can be difficult to reduce the MBS portfolio in the face of rising interest rates that reduce mortgage refinancing. Also, as the Fed’s balance sheet shrinks, liquidity problems will follow in the fall.
Subject of the week: Beige Book
This week, the Fed released the Beige Book for its July meeting. Regional banks describe situations across the country as: slowing growth, fears of inflation, and even some recession risks.
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