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The XAU/USD gold bulls gained additional momentum with the weakness of US inflation readings, which allowed prices to move towards the $2028 level, before gold settled around the $2015 level at the time of writing. The continued weakness of the US dollar guarantees a bull market for gold.
US stocks fell on Wednesday in Wall Street markets after the latest update on inflation and the latest warning of a possible recession. By turnover, the S&P 500 fell by 16.99, or 0.4%, to 4091.95, after drifting between small gains and losses during the day. The Dow Jones Industrial Average fell 38.29, or 0.1%, to 33,646.50, and the Nasdaq Composite fell to 11,929.34. The main focus on Wall Street markets for more than a year has been soaring inflation and the amount of painful medicine the US Federal Reserve will have to provide to contain it. Wednesday’s update on inflation was mixed, showing that prices at the US consumer level were 5% higher last month than a year earlier.
This is still well above the Fed’s comfort level, and some of the underlying trends in the data were worrying as well. This has affected the financial markets. But on the upside for investors, the overall inflation figure was still better than the 5.2% that economists had expected. It also represents a sustained slowdown from the peak of inflation last summer.
All in all, the data has sent stocks bouncing back, although the volatility hasn’t been as severe as it has been over the past year. Nearly 65% of stocks within the S&P 500 have fallen. Overall, investors are still largely betting that the Fed will raise short-term interest rates by another quarter of a percentage point at its next meeting, according to data from CME Group. They kept some bets on the possibility that the Fed will keep interest rates steady in May, something it hasn’t done in over a year.
Higher rates can dampen inflation, but only through an outright slowdown in the entire economy. This increases the risk of a recession later, while hurting the prices of stocks, bonds, and other investments in the meantime. The Fed has already raised US interest rates at a rapid pace over the past year, enough to hurt the economy’s pockets and create stress within the banking system.
This has led many investors and economists to predict at least a short and shallow recession in the economy later this year. If banks hold back on lending as a result of all the problems in their industry, that could tighten the vise even further on the economy. Within minutes of the Fed’s latest meeting, released on Wednesday afternoon, the US central bank said its economists expected the decline in lending to lead to a “moderate recession” starting later this year. Earlier, its employees had expected weak growth.
The bond market showed more nervousness about a potential recession, and investors built bets that the Federal Reserve would have to cut interest rates later this year in order to support the economy.
Yields fell immediately after the inflation report, pared losses later in the day and then fell again after the Fed minutes were released. Accordingly, the 10-year Treasury yield fell to 3.41% from 3.43% late Tuesday. It helps determine rates for mortgages and other important loans. The two-year Treasury yield, which moves further based on the Fed’s expectations, fell to 3.96% from 4.03%.
Meanwhile, the stock market showed relatively less fear. It’s still up for the year to date, in part because of hopes the Fed can strike the balance of slowing the economy enough to stifle inflation but not so much as to cause a severe recession that erodes corporate earnings.
- There is no change in my technical point of view, as the XAU/USD gold price will remain stable above the psychological resistance of $2000 an ounce.
- This is motivating the bulls to continue controlling the trend.
- This rebound may remain the same until the markets and investors react to the announcement of the rest of the US economic data numbers for this week.
In the event that the data came in favor of continuing to tighten the policy of the US Central Bank, the gold market may be exposed to rapid profit-taking operations. If this happens the support stations 1955 and 1938 dollars will be the most important. On the contrary, if the data and events came to halt the course of tightening the US central bank’s policy, the bulls may continue to breach higher levels, the closest to which they are currently, 2025 and 2048 dollars, respectively
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