By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
The FED and ECB confused the markets with FED giving a hawkish pause and a promise of two more rate hikes, while ECB raised the interest rates and hinted at a rate hike again next month.
A pause is good for gold, but it was the most hawkish pause in Interest rates. Gold prices broke important support of $1950 as a result of conflicting signals from the Federal Reserve. But Gold prices rebounded the next day from the level of $1935 as the dollar tested a multi-week low on the ECB rate hike and hinted at a rate hike again next month. Following the ECB meeting, the euro gained overall strength as a result of hawkish expectations.
Both banks are hawkish about the economic outlook, which one day strengthened the dollar and the other day the euro. The price of gold is still waiting for evidence that the FED is truly fully completed, with rate hikes as well as a US dollar-deflationary catalyst.
Market analysts claim that the Federal Reserve is flying blind into an ugly recession in the first quarter of 2024 because it doesn’t know what it is doing. The money supply has decreased by 4.6% since last April. Because of the money supply’s sharp decline, inflation is falling very quickly. Eventually, the economy will also experience a sharp economic decline.
After the FED indicated in new projections that borrowing costs might still need to rise by as much as half a percentage point by year’s end, traders are now pricing in a 74% chance of a 25-basis point rate hike in July.
In June, the price of gold fluctuated between $1935 and $2000. Gold has been moving sideways for so long that a larger move in one direction or the other is overdue. It could retest the $1880 (~Rs 57000) level, if the $1935 (~Rs 58700) level breaks, or it could rise above $1985 (~Rs 59600) to reach $2025 (~Rs 61500).
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