Gold and Bitcoin investors await the Fed’s interest rate decision with expectations of tighter US monetary policy. The yellow metal calmed after posting its biggest weekly gain since May as the US weighed on concerns about the economic slowdown. Bitcoin, on the other hand, gave back some of its gains from its rally.
Gold and Bitcoin investors await FOMC result
Gold bullion hit its lowest level since March 2021 last week. However, gold rose as Treasury rates eased after weak US economic data. Bitcoin, on the other hand, made a relief rally as the Fed’s 100 basis point rise prospects weakened. The opening of risk appetite has also helped the broad crypto market emerge from its slumped bottoms. Now all eyes are on the Federal Reserve’s decision. In general, markets expect the Fed to raise another 75 basis points on July 6-27.
The rate decision is likely to be accompanied by increased volatility among risk assets. Ultimately, the recent crash in the cryptocurrency market also started the Fed’s tightening move. According to analysts, the crypto market has the potential to worsen this situation due to low summer liquidity and a lack of faith among buyers.
Gold is heading for its fourth monthly loss as the Fed tightens and the stronger dollar weakens its appeal as a haven, overshadowing inflation and slowdown concerns. Over the weekend, former Treasury Secretary Lawrence Summers cast doubt on the possibility of a soft landing for the United States. Also, incumbent Janet Yellen said she doesn’t see any signs that the economy is in a broad recession.
“A rally is possible as most of the sales have already taken place”
Additional bearish pressure on gold came as investor interest fell and bullion-backed exchange-traded funds fell in its sixth week, according to preliminary data compiled by Bloomberg. Hedge funds traded on the Comex have turned gold for the first time since 2019, according to Commodity Futures Trading Commission data. Heraeus Metals Germany GmbH & Co. includes the following evaluation in its weekly note:
Hedge funds typically follow the market trend. Therefore, this data is an indication that gold sentiment has reached a significant low. Such position excesses, minor changes in market conditions, can result in a rally as most of the sell-off has already taken place.
How will gold be affected if the Fed does not meet expectations in September?
As you follow on Kriptokoin.com, the expectations are that 75 basis points will come out of the July FOMC. This data appears to be good for the US dollar overall. However, the rate hike is likely to be fully priced in by the market. Therefore, it is less likely to push the USD to new highs, according to market analyst Mark O’Donnell.
Meanwhile, other countries’ central banks are raising interest rates equally or more aggressively than the Fed. That’s why a 75 basis point increase may no longer matter for the USD, the analyst says. First, the ECB surprised the markets, raising interest rates by 50 basis points last week. With this move, the ECB doubled its market forecast. The analyst evaluates the impact of the Fed’s decision as follows:
This sensitivity to US rate hikes may result in an upward turn in gold. This potential is likely to increase if the Fed fails to deliver the expected 75 basis points after its next meeting.
“Indicators support a temporary reversal below”
Mark O’Donnell interprets the technical outlook of gold as follows. Looking at the price of gold last week, we can see that it has bounced back after forming the low at 1,680,935 on the daily timeframe. MACD indicator, the blue MACD line has almost crossed over the orange signal line. It indicated a potential upside momentum where the histogram closed just slightly above the zero line. These indicators support a temporary reversal sign. The RSI also broke out of the oversold zone, breaking above the 30 level on July 20. Hence, it created a buy signal.
However, this upward move to gold is likely to be insufficient if the Fed raises rates by 75 basis points more. A 100 basis point rate hike is likely to trigger a bearish move for gold. In this case, it is possible for gold to continue its downtrend and the US dollar to strengthen further.
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