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Gold hits six-month low as interest rates rise

08 July 2022

In this week's market report:

  • Gold falls 
  • The USD remains at 20-year high
  • Central bank focus on reducing inflation 
Dear Investor,

US Dollar Gold Price [XAUUSD]
Daily

Source: Trading View
(Click to enlarge)
 
Gold falls: Spot gold is down 4.26%, losing US$77 per ounce to rest at US$1,740. The US dollar continues to put pressure on gold. Managed money does not appear to be rotating into the yellow metal in spite of inflation remaining sticky. Spot gold has now fallen more than US$300 per ounce since its US$2,069 peak in March 2022. 

Bargain hunting: Gold’s dramatic sell-off into the US$1,700s this week brought out the bargain hunters, says David Meger, Director of Metals trading at High Ridge Futures.  

Strong dollar crimps gold: The US dollar remains at a 20-year high.   Jobs data may surprise: US non-farm payroll data is due out tonight (AEDT). A separate weekly US data set shows jobless claims have been nudging higher, though the consensus for June non-farm payrolls is to be lower than the previous month.  

Reducing inflation is the central bank focus: The Federal Reserve Bank June minutes show that inflation is the core focus of policy as prints continue to inch up. There is concern the market has lost faith in the Fed’s ability to reduce inflation through interest rates.  
 
RBA increases rates: On Tuesday, the Reserve Bank of Australia lifted the cash rate by 50 basis points to 1.35%. There is speculation another 50 basis point increase will follow in August, bringing the rate to 1.85%.  
  • Estimates vary on the terminal rate. Financial markets indicate the RBA’s cash rate will be 3.54% by June 2023
  • Philip Lowe, Governor of the RBA, says inflation in Australia will reach 7% by December (the previous forecast was 6%) but expects it to drift back to the 2-3% band in 2023. 
  • Lowe argues Australians have built up a savings buffer over the course of the pandemic, which should offer some economic reprieve.  
  • Falling house prices may influence people to spend less, eroding the previous benefit of the wealth effect. 
Palladium up, everything else down: Palladium moved up slightly this week. In contrast, platinum reached a 20-month low, falling under US$900 per ounce for the first time since November 2020. 
  • Silver is lower by 5.32% to US$19.21   
  • Platinum fell by 2.26% to US$863  
  • Palladium rose 3.51% to US$1,913 
Bulls, get ready for bargain hunting: Be wary of the ‘dead cat bounce’ this week. Do not resume trading at first signs of short-term strength, as a brief recovery may not halt the continuation of a declining price.  

Bears, look out for US$1,700: Bigger falls may be ahead as gold looks for a bottom on either side of US$1,700. A brief dip into US$1,680s is plausible but unlikely to hold.  

Gold rests above AU$2,500: The Australian dollar gold price fell 2.84% to AU$2,543 this week. The AUD is down 0.80% to 68.47 US cents.  
 

Inside our office this week...

One of the benefits of a falling gold price is that it may enable you to ‘dollar cost average’ your position. Learn more about that here.  
As gold continues to experience ongoing volatility, it is imperative to remember buying precious metals is a long-term, multi-decade investment. Pauses or falls in spot gold offer you opportunities to increase your precious metal holdings at a lower price.  
Many investors this week used gold’s plunge to increase their position in ABC Bullion Pool Allocated Gold, as well as gravitating to the 100g ABC Bullion Gold Cast Bar as an addition to their portfolio. 
Warm regards,
The ABC Bullion Team