Gold market analysis

"Gold Price at $3,321 Must Not Be Lost" 10:02 am, July 15, 2023 Completed 

Yesterday, Trump told NATO Secretary General Mark Rutte that if Russia fails to end the Russia-Ukraine conflict within 50 days, the US will impose severe financial sanctions on it and will impose a 100% secondary tariff, but did not disclose the details. It is not clear whether this includes retaliatory tariffs or additional tariffs. However, the term "secondary tariff" was previously used by the Trump administration to describe punitive tariffs imposed on third parties that trade with countries hostile to the US. In other words, this is a tariff in addition to retaliatory tariffs, mainly targeting countries that purchase Russian crude oil. 

If this approach eventually leads to the end of the Russia-Ukraine conflict, the role of gold as a safe haven during wars will diminish, and the gold price will inevitably come under pressure. On the other hand, the US will release the June CPI tonight. It is expected that the overall year-on-year increase will expand from 2.4% to 2.6%, and the core CPI year-on-year is also expected to increase from 2.8% to 3%. The rise in inflation will naturally make the market more convinced that the Federal Reserve will not cut interest rates at the end of this month. Whether it has the ability to cut interest rates in September, of course, also depends on future inflation performance. 

The opportunity cost of holding gold is not insignificant. 

Investors may ask, doesn't gold have an anti-inflationary effect? Why is it not expected to rise? It should be noted that even though the federal funds rate has dropped by 1 percentage point from last year's peak to the current 4.25% to 4.5%, it is still the highest level since the 2000 financial crisis. The real interest rate is also about 2%. Just from the perspective of interest, the opportunity cost of holding gold is 2%. Will investors give up the 2% return they can get from holding the US dollar and continue to hold gold? If US inflation slows further, gold cannot appreciate on the grounds of anti-inflation. In other words, the development of gold prices depends entirely on how investors view the prospects of the Russia-Ukraine war and inflation. 

Gold prices gapped higher yesterday. In the early Asian session, they rose to a high of $3,374 before fluctuating. Although they climbed to $3,375 in the early European session, selling pressure increased significantly. After rising to $3,374 in the midday session, they failed to break through $3,375 and plunged sharply. They hit a low of $3,341 in the early New York session before gradually stabilizing. From the daily chart, $3,321 is a short-term indicator for judging whether gold prices can continue to rise. If they close above this level, there is still hope for further gains. However, if they close below this level, gold prices will face downward pressure again. 

The gold price may fall to $3,318 within the day. 

From the hourly chart, gold prices show a more downward trend. After three large bearish candles appeared in New York yesterday, the price rebounded but failed to challenge the top of the last bearish candle at $3,356. The current important support level is at $3,341. If the price closes below this level on the hourly chart, gold prices are expected to fall further. In the short term, gold prices are likely to range between $3,341 and $3,356. An upward break could lead to another challenge of $3,375, but this level is expected to offer significant resistance. If there is a downward break, gold prices are likely to fall to $3,329 or even $3,318 before stabilizing. Even so, as long as the daily chart closes above $3,321, the medium-term upward trend remains unchanged. 

The above content is for reference only and does not constitute investment advice. MTF Special Analyst Zheng Guangfu