The whole focus for this year has been surrounding the rise in inflation. T the general flow to Gold acts as an inflation hedge due to its store of value. The big turning point for gold came as the vaccine was announced in November last year. This resulted in the breaks of the strong Gold bias that resulted in all-time high levels of $2075.
The subsequent halt to the rally came as the vaccine was announced in November last year as a greater expectation of a global recovery post-Covid was on the cards as gold positions started getting liquidated. Gold hasn’t breached the post-vaccine high of $1964 since the announcement.
Gold started making some substantial progress toward recovery as inflation breached the Fed’s 2% target inflation rate, as inflation pushed to 5.4% over the current year. The Biden administration shows no real signs of slowing down their spending as the infrastructure plan is to be announced.
High inflation will be good for gold to drive the price higher. However, with asset purchase tapering on the horizon, we could still see some substantial downside. Therefore, if the discussion continues during the course of the Jackson Hole Symposium or in the next month’s FOMC monetary policy statements.
Vaccination rates are on the rise, unemployment rates are coming down and a vast amount of jobs are still up for grabs, there could still be some substantial downside to gold as the Dollar and US economy seems to have a lot more upside than downside in it.
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Aggressive Break of the Trend
At the time of writing the precious metal is struggling to break through its falling trend line, holding above $1774. The aggressive break of the rising trend was following impressive unemployment figures that were out that saw NFP come close to 1 million new jobs and unemployment improving by 0.5%.
The recent retracement back up to the top of the falling trendline may be the next selling opportunity to see gold continue down to the 132.6 Fibonacci level. Considering NFP is due to be next week as well as FOMC statements due on the 22nd of September. We believe some substantial downside could still be on the cards. This is if the US labour market continues to improve and the Fed decides to taper assets.