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For the second consecutive day, XAU/USD gold price is trying to rebound to the upside to avoid further collapse, as its gains did not exceed $1833 an ounce. It is stable around it at the time of writing the analysis. The bears’ recent control of the trend pushed gold price towards the support level at $1805 an ounce, the lowest price of the yellow metal two months ago. The decline was primarily amid the strength of the US dollar due to expectations of raising US interest rates by the US Federal Reserve, as the markets ruled out the hypothesis of a recession in the US economy in light of the tightening of the US Federal Reserve’s policy.
For a few weeks in late January and early February, the US economy seemed to have reached a rare strong point. As inflation has been steadily slowing from painful highs. Growth and employment remained surprisingly strong despite the high US interest rates imposed by the Federal Reserve. Perhaps, according to the thinking, the Fed’s inflation warriors would have been able to solve a notoriously difficult “soft landing”: a scenario in which borrowing and spending slow enough to tame inflation without tipping the world’s largest economy into recession.
Financial markets got their approval in the first six weeks of 2023, with stock prices surging on expectations that the Federal Reserve may soon pause and finally reverse the string of aggressive interest rate hikes it began nearly a year ago. Then there was a twist.
The US government said its closely watched consumer price index jumped 0.5 percent from December to January – five times the increase from November to December. Over the next week and a half, two more government statements told the same story: The Fed’s campaign to rein in inflation was nowhere near winning.
The realization sparked a related concern: If high inflation is more persistent than we thought, the Fed will likely continue to raise interest rates — and keep them high — for longer than expected. Such high borrowing rates would increase the likelihood of a recession, with layoffs and business failures.
Unsurprisingly, the stock market has plummeted into the future.
All in all, consumer inflation, which hasn’t been a big problem, on average, since the early 1980s, started to pick up in the spring of 2021 as the economy emerged from recession and Americans were spending freely again. At first, Fed Chairman Jerome Powell and some economists dismissed the sudden price hike as a temporary problem that would likely resolve itself once clogged supply chains returned to normal.
But the supply bottlenecks lasted longer than expected, as did high inflation. Even worse, the Russian invasion of Ukraine a year ago sent energy and food prices skyrocketing. By June 2022, consumer prices were 9.1% higher than they were a year earlier — the highest year-on-year inflation rate in more than four decades. By then, the Fed was starting to react late. It has raised the benchmark interest rate eight times since March 2022 in the most severe credit tightening since the early 1980s.
- The general trend of the XAU/USD gold price is still bearish.
- We indicated in the recent technical analysis of the gold price that the approach to the psychological support level of $1800 will deepen the movement of the technical indicators towards oversold levels.
- It can be expected to think about buying while not taking risks from Support levels are 1800 and 1785 dollars an ounce, respectively.
- On the other hand, and for the same time period, the resistance stations at 1845 and 1872 dollars, respectively, will be the most important for an exit from the current bearish channel.
The price of gold today will be affected by the level of the US dollar and whether or not investors are willing to take risks.
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