GOLD SINK DRASTICALLY, LET’S CHECK IT OUT THE KEY FACTORS BEHIND GOLD’S COLLAPSE; July 06, 2022

GOLD SINK DRASTICALLY, LET’S CHECK IT OUT THE KEY FACTORS BEHIND GOLD’S COLLAPSE

Gold was in red on Tuesday and touched $1,762 mark as DXY hit highest level since Dec 2002. Currently the pair takes halt around $1,770 mark.

• The key affecting factor behind gold’s nose- dive was the robust U.S. dollar only.
• The core factor behind U.S. dollar’s strengthening is safe haven currency as Fed has shown their readiness to take necessary steps to bring the inflation under control and Fed is actually working on the same by rapidly raising the interest rate.
• All eyes are on the FOMC meeting minutes scheduled today at 1800 GMT/2330 IST, with markets looking for hint related to the upcoming rate hike strategy and any new recession comments from the FOMC members.
• The CME FedWatch Tool shows an 85.6% chance of a 75-basis-point rate hike at the July meeting and only a 14.4% chance of a 50-basis-point hike.
• ING Chief International Economist James Knightley – “The Fed has made it clear that it is resolutely focused on getting inflation under control so we will either need to see a very weak jobs report, published on 8 July, or, but quite possibly together with, a surprise drop in inflation, out 13 July, that reflects declines in a broad range of categories.”
• On the other side, physical gold demand could see some hurdles as India has increased the basic import duty on gold from 7.5% to 12.5% as India is a major importer of gold.
• According to the latest data from the World Gold Council (WGC), Central banks worldwide bought gold for the second consecutive month in May. Central banks added 35 metric tons to the global gold reserves in May after buying 19.4 tons in April.
• The biggest gold buyers were Turkey with additional 13 tons, followed by Uzbekistan with nine tons, Kazakhstan with six tons, Qatar with five tons, and India with four tons – WGC.
• The only significant Central Bank seller was Germany, which reduced its gold holdings by two tons in May. The selling was likely because of “its longstanding coin-minting programme – WGC.
• June results are also looking very positive for central bank gold buying, with the Central Bank of Iraq (CBI) announcing that it bought 34 tons of gold in June, which raised its precious metal’s reserves to just over 130 tons – WGC.
• The above WGC figures show that gold’s performance during a time of crisis and its role as a long-term store of value/inflation hedge are key determinants of Central banks’ decision to hold gold.

Based on continued selling pressure in gold capped by yesterday’s $49 decline the question becomes where could gold find technical support?

Technical View:

XAU/USD (Gold):

• Gold trades marginally higher and trading around $1,770 mark.
• The pair made intraday high at $1,772 and Low at $1,764 mark.
• A day chart and H1 chart with triple EMA suggest bearish trend for the time being.
• A sustained close above $1,778 on H1 chart requires for the upside rally.
• Alternatively, a consistent close below $1,760 on H1 chart will test further supports.

 
Take a look and do trade wisely!
Good Luck