Books – Islam Saeed

Sunday, July 23, 2023 01:00 AM

Gold prices rose for a third week in a row, despite a weaker dollar in the second half of the week. The ounce was up 0.4% in spot trading, hitting a 9-week high of $1987 an ounce.

Gold Billion’s technical report revealed that the main reason for the significant rise in gold prices last week was that US retail sales data for June showed a 0.2% increase, below expectations and the previous reading of 0.5%.

The June jobs report and last week’s retail sales and inflation data greatly boosted expectations in markets that the Federal Reserve will end the rate hike cycle after its next meeting.

The gold market awaited the results of meetings of the Federal Reserve, the European Central Bank and the Bank of Japan, along with data on the US core personal consumption expenditure index, which is the Federal Bank’s preferred gauge of inflation, the Gold Billion report indicated.

Expectations in the markets indicated that the Federal Reserve would raise interest rates by 25 basis points to 100% before the bank halted the previously announced cycle of interest rate hikes and monetary tightening.

June inflation data in the United States showed a sharp slowdown in inflation, as the consumer price index rose 3%, the slowest pace of inflation in two years, and core CPI, excluding volatile food and energy prices, rose 4.8%, the slowest rise since 2021.

A significant drop in inflation and an expected gradual decline in the labor market in the second half of the year will prompt the Federal Reserve to raise interest rates one more time at its next meeting, ending the monetary crisis in the second half of the year.

The Federal Reserve Bank has indicated more than once that its decisions depend on the data, that the US economy can overcome this crisis without falling into recession, and that in light of the data showing a slowdown in growth rates and consumer spending, the bank may end the tightening policies it has continued since last year. Interest attracts investments from non-yielding gold markets in favor of bond markets that offer rising returns with higher interest rates.

In the short term gold will face a critical week that could affect its movements, as the Fed’s adherence to monetary tightening could significantly depress gold, and the tightening of the Bank’s interest rate hike cycle could push gold above the psychological level of $2000 an ounce.

As for the US dollar, it witnessed a revival in the week ended. According to the dollar index, which measures its performance against a basket of 6 major currencies, the greenback rose 1.2% on the week and ended above 100 points after hitting its lowest level since April 2022.

The dollar’s recovery has contributed to pushing the price of gold down from 1980 dollars an ounce to an ounce, because gold is a commodity priced in dollars, and the dollar’s rise makes gold cheaper for holders of other currencies.

Demand for the dollar as a safe haven for investors during economic downturns may increase as the slowdown in growth and spending data in the US begins to emerge, with the dollar expected to continue to recover in the near term.