Gold prices pushing close to $1800, but subdued in Fed “eagle” (with trading strategy)

Gold prices edged lower on Thursday as a stronger dollar dented the metal’s appeal, while investors awaited more U.S. economic data due this week to gauge inflationary pressures.

Spot gold fell 0.16%，to $1776.02 per ounce by 11:50(GMT+8)

The dollar index held firm below an 11-week high against its rivals, making gold more expensive for holders of other currencies.

A period of high inflation in the United States may last longer than anticipated, two U.S. Federal Reserve officials said, prompting one to pull forward his views on when the central bank should start raising interest rates.

Gold is often seen as a hedge against inflation, though a rate hike by the Fed will increase the opportunity cost of holding bullion and dull its appeal.

Wednesday, IHS Markit said its flash U.S. manufacturing Purchasing Managers Index for June dropped to a reading of 62.6, up from May’s reading of 62.1. The reading represents a new record higher within the manufacturing sector.

The data was also better than expected as economists were expecting to see a reading of 61.5.

At the same time the report said that the service-sector PMI dropped to a reading of 64.8, down from May’s reading of 70.4. Consensus forecasts were expecting a reading of around 70. The report said that sentiment in the service sector dropped to a two-month low.

The gold market is seeing little reaction to the latest economic data as the market continues to see some technical buying momentum. Gold prices were in positive territory ahead of the report and have pushed higher in initial reaction. August gold futures last traded at $1,793.80 an ounce, up nearly 1% on the day.

Investor focus has now shifted to U.S. producer price inflation data on Friday, apart from jobless claims on Thursday and consumer spending on Friday.

Gold price can still reach $1,900

Despite gold's dramatic drop through critical support levels, one bank sees potential for prices to push back to $1,900 an ounce by the end of the year. However, the precious metal will have to contend with higher inflation and interest rates in the next few years.

Wednesday, in a Zoom discussion, Fahad Tariq, precious metals analyst at Credit Suisse, said that even at lower prices, there is still plenty of value in the gold sector, particularly in the equity space.

He added that although the Federal Reserve has signaled that it could potentially raise interest rates in 2023, real interest rates are still in negative territory, and this isn't going to change anytime soon.

Tariq said that Credit Suisse sees gold in a holding pattern right now; however, it is still a positive environment for gold producers. The comments come as August gold futures currently trade at $1,783.60 an ounce, up 0.36% on the day.

"If you had told gold producers years ago that this is the gold price, you'll have to deal with it. They would have been ecstatic. Their margins are extremely wide. You're seeing very strong cash flow, and balance sheets are as strong as they've ever been." he said.

"Even if you assume flat gold prices or that gold prices go down a little bit, you will still see very strong fundamentals for these equities," he added.

However, the bank is not so optimistic on gold in the long term. In the discussion, James Sweeney, managing director and chief economist at Credit Suisse, said that investors need to prepare for a new inflation regime.

Sweeney noted that in the last decade, inflation had hovered around 1.7%. Although he is not expecting to see a major hyperinflationary environment, he said that inflation could trend around 3% for the next decade.

He added that gold could struggle in the next few years as inflation pressures stabilize at higher levels, with both nominal and real interest rates pushing higher. He added that the risk is if inflation is persistently hotter than economists and the central bank are expecting.

"I wouldn't be surprised if the neutral short-term rate is above 3%, five years from now, even 3.5%. For gold, that will matter if that happens," said Sweeney. "At some point, if inflation turns out to be stubborn, the market reassesses that short rate expectation to something higher, gold and a number of other assets are not going to like that news. I think that's a major risk for financial markets broadly over the next two years."

Along with higher average inflation, Sweeney said that he also expects economic volatility to pick up.

"It's related to the fiscal challenges and the big, expensive problems that that governments have and the big debt stock that we have. I think these are going to create sources of volatility in the short run," he said.

Trading strategy (Source: Trading Central)

Pivot: 1784.00

Our preference: short positions below 1784.00 with targets at 1766.00 & 1760.00 in extension.

Alternative scenario: above 1784.00 look for further upside with 1790.00 & 1795.00 as targets.

Comment: the RSI calls for a drop.

Supports and resistances:

1795.00

1790.00

1784.00

1775.91 Last

1766.00

1760.00

1750.00

Guideline for Trading Central strategy

Trend chart reading guideline

1. First look at the time period in the upper left corner of the chart：

‧30MIN and 1H chart shows the trading suggestions for intraday

‧Daily chart shows the market trend analysis in next 2-3 days

2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.

3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is  MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators:  Blue line is RSI, Red line is 9MA;

4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.

How to use TC strategy？

1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 

2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.

3. [Alternative scenario] is the plan B for your reference. 

4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 

5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.