Gold Price Analysis: Economic Woes and US-China Tensions Support, while Rate Hike Bets Cap Gains

Gold price attracts buying interest during the Asian session on Thursday, rebounding from the previous day's retracement slide.

Arslan Butt•Thursday, July 6, 2023•2 min read

GOLD price attracts buying interest during the Asian session on Thursday, rebounding from the previous day’s retracement slide near the $1,935 level, which marked a nearly two-week high. Currently trading just below $1,920, the price of gold has increased by 0.20% for the day, although a significant upward move remains elusive.Support for the Gold price stems from economic concerns and escalating tensions between the US and China.

A private survey revealed weaker-than-expected growth in China’s service sector in June, fueling worries about a global economic downturn. Additionally, the potential risk of further trade conflict between the world’s largest economies dampens investor appetite for riskier assets, leading to a weaker tone in equity markets and providing support for the safe-haven Gold price. However, the prospects of the Federal Reserve tightening its policies may hinder traders from taking aggressive bullish positions on the non-yielding yellow metal.Expectations of additional interest rate hikes by the Federal Reserve could limit upside potential for XAU/USD.

Minutes from the June Federal Open Market Committee (FOMC) meeting showed broad support for resuming rate hikes due to persistently high inflation. Some members even favored raising rates rather than pausing, citing a tight labor market that could push wages and inflation higher. Market expectations for a 25 basis points lift-off at the upcoming FOMC meeting in July, as well as a more hawkish stance by other major central banks, contribute to the potential for capped gains in the Gold price.

Caution is warranted for GOLD bulls due to hawkish outlooks from the Bank of England (BoE) and the European Central Bank (ECB). Market pricing indicates the possibility of a further 130 basis points of tightening by the BoE by the end of the year, and BoE Governor Andrew Bailey’s recent statements suggest interest rates could remain at peak levels for a longer duration. Meanwhile, despite signs of a weakening Euro Zone economy, ECB policymakers anticipate increasing borrowing costs in July and September meetings.

Therefore, it is advisable to wait for strong follow-through buying before anticipating a resumption of the recent recovery in the GOLD price.In terms of technical analysis, the $1,925-$1,926 region is expected to act as an immediate obstacle, followed by the overnight swing high near $1,935. Further resistance lies around the 100-day Simple Moving Average (SMA) at approximately $1,947. A sustained breakthrough above this level could trigger a short-covering rally, propelling the Gold price towards the $1,962-$1,964 range and potentially testing the supply zone between $1,970 and $1,972. Subsequent buying momentum may enable the bulls to reclaim the psychological level of $2,000 and challenge the $2,010-$2,012 resistance level.On the downside, support is likely to be found around the $1,915-$1,914 region, followed by the $1,908-$1,907 area and the $1,900 mark.

The next significant support level resides near the $1,893-$1,892 region, which represents the multi-month low observed last week. A convincing break below these support levels could accelerate the Gold price’s downward trajectory towards the important 200-day Simple Moving Average (SMA) currently positioned around $1,860.

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.