Risk Appetite And Stronger Dollar Drag Down Gold – Selling Favoured

Gold prices eased on Friday (22/7) as investors moved their attention to riskier assets following the see-saw sentiment swings between the possibility of additional economic stimulus in Europe and Japan, and the chance of U.S. monetary policy being tightened before the end of 2016.


Yesterday (21/7), The European Central Bank (ECB) held rates at record lows as it seeks to revive growth and inflation with the provision of cheap credit to the economy. While holding off on further easing of monetary policy as markets had expected, ECB President Mario Draghi stated that the central bank would consider expanding the economic stimulus (as needed), once it had a clearer assessment of the Brexit vote’s economic impact. As a result, gold rebounded from a three-week low since the door still remains open to more policy stimulus from the ECB.

In Japan, according to an advance Reuters’ poll, Japan’s core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, is expected to fall by 0.4% in June for the fourth straight month. Low consumer prices continue to create tricky issues for the BOJ, which has attempted to stimulate the economy such that it can attain the stated inflation objective of 2% via heavy buying of government debt from the bond market and its adoption of negative interest rates earlier this year. The forecast for a weak CPI reading has still kept alive the market’s hopes of further stimulus measures from the BOJ.

However, today (22/7), gold has pared its bounceback, following the improvement in investors’ risk appetite with rocketing U.S stocks and a strengthening dollar. U.S. stock indices edged higher today, after the Dow industrials snapped a nine-session streak of gains yesterday. Also, the S&P 500 is trading at record high as 67% companies on the S&P 500 shares have topped analysts’ earnings estimates, slightly higher than the average figure of 63%. Moreover, the dollar continues to gain ground on strong readings from the U.S. labour market and inflation, which has raised the possibility of a U.S. interest rate hike by year-end.

As long as prices are coming down, most investors in Asia may return back to gold, especially in India and China. Consumer demand in India, the world’s second biggest gold consumer, is expected to get a boost as the country gears up for the festival and wedding season that begins next month. Moreover, data reported last week showed that China’s economy grew 6.7% in the second quarter. A positive outlook for the country’s recovery helps lift its consumer demand for the precious metal.

Markets are looking forward to a hawkish stance from Federal Reserve chair Janet Yellen at the FOMC meeting on July 27.

gold d1

Fig. GOLD D1 Technical Chart

On the daily chart, RSI (14) has ticked down to the level of 52.1142, suggesting that the market is moving towards a bear trend. The price has broken through the MA from above, indicating that the downtrend is becoming dominant. The commodity is anticipated to fall further to the 23.6% Fibonacci retracement level before attempting any bounce back.

Trade suggestion

Sell Stop at 1321.45, Take profit at 1317.59, Stop loss at 1324.42

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