Gold faces intense sell-off amid hawkish Fed bets, BRICS’s gold-backed currency loses appeal – Crypto News – Crypto News
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Gold faces intense sell-off amid hawkish Fed bets, BRICS’s gold-backed currency loses appeal – Crypto News

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  • Gold price faces an intense sell-off as investors are confident that the Fed will raise interest rates further on July 27.
  • More rate hikes are widely anticipated as the United States’ core inflation remains resilient.
  • Support from BRICS’ gold-backed currency discussions is losing its appeal.

Gold price drops sharply as investors focus their attention on the Federal Reserve (Fed), which is likely to resume its policy tightening spell next week after skipping in June. In addition to the Fed, the Bank of England (BoE) and the European Central Bank (ECB) are also preparing for raising interest rates further so that inflation can return to the 2% target. The appeal for Gold is diminishing as more interest-rate hikes from the Fed would also propel fears of a recession in the United States.

It looks like Gold’s strength from discussions about introducing a new gold-backed currency by the BRICS (Brazil, Russia, India, China, and South Africa) is losing its appeal. The reasoning behind introducing a new gold-backed currency, an announcement which is expected in August, is that it might be used for international payments.

Daily Digest Market Movers: Gold price falls sharply ahead of Fed policy

  • Gold price turns sideways after a corrective move from a two-month high of $1,987.50 as the US Dollar Index shows resilience ahead of the monetary policy by the Federal Reserve, whose decision will be announced on July 27.
  • In spite of a significant decline in United States inflation, easing labor market conditions, and slow momentum in consumer spending growth, investors expect one more interest-rate hike of 25 basis points (bps) to 5.25-5.50%.
  • Market participants expect that US inflation will decline, but it is far from the desired rate of 2%. Therefore, further policy tightening cannot be ruled out.
  • Investors are anticipating that next week’s rate hike will be the last nail in the coffin and that interest rates will peak for the current year.
  • The US Dollar Index has posted a three-day winning spell after nosediving last week as the room for more interest-rate hikes by the Fed is still open.
  • Meanwhile, US labor market conditions are regaining strength again, according to weekly Jobless Claims data, which have dropped surprisingly.
  • Individuals claiming jobless benefits for the first time declined to 228K for the week ending July 16, lower than the 242K expected and the earlier release of 237K.
  • Loosening labor market conditions were decelerating inflationary pressures, and a recovery in the same could elevate overall consumer spending and slow down the current disinflation trend.
  • The US housing market is facing the wrath of higher interest rates by the Fed as Existing Home Sales for June declined by 3.3% and Housing Starts decreased by 8.0% on a monthly basis.
  • According to the latest data from the Federal Reserve, bank borrowings from the Fed’s emergency lending programs snapped their two-week decline and climbed in the week ended July 19.
  • Despite tight credit conditions by commercial banks, the increase in the Fed’s lending data indicates that demand for credit by firms is resilient even in a high-interest-rate environment.
  • Market mood has turned cautious as US tech stocks have come under pressure amid a disappointing second-quarter earnings season.
  • US Treasury Yields follow the footprints of the US Dollar Index. The yields offered on 10-year US Treasury bonds are around 3.85%.

Technical Analysis: Gold price declines towards $1,960

Gold price faces pressure above $1,980.00 as the US Dollar Index rebounds meaningfully. However, the broader trend of Gold is bullish as it trades comfortably above the 20-day Exponential Moving Average (EMA) at $1,950.00. Investors should note that the 20- and 50-day EMAs are on the verge of delivering a bullish crossover. This would strengthen the upside bias further. Fresh longs are expected in Gold price if it manages to climb above $1,980.00 convincingly.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, although the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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