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A 100 bps rate hike speculation knuckles gold down to 1 700$

Gold operates under strong support at 1740$. A massive inflation data from the US pushed the metal to test the 1700$ level.

1700$ has been tested, what now?

Negative sentiment persists, and gold erased -2.59% from previous, broken, support at 1740$, to the low at 1695$. We pointed out the area 1740-1692.6 in the previous article. Moreover, the lower level worked as a support and stopped the fall of gold. Despite the fact that the price went under 11-month-old support, the biggest volume of the current month stays around 1740$ level. This volume is highlighted by a white ellipse on the histogram on the right side of the chart. This defines the situation where broken support became resistance. A possible up-move above this resistance could signal a pause in the metal’s downtrend. But do not forget that negative sentiment persists.

Read more about: SP500 remains bearish after massive US inflation

4 hours chart of GC (Gold Futures), The break under 1740$ level. Source: Author's analysis

4 hours chart of GC (Gold Futures), The break under 1740$ level Source: Author’s analysis

Commodity sensible to the rate hike

Fed’s monetary policy is, currently, a fundament with one of the biggest influences on gold. The awaited rate hike is 75 bps from 1.75% to 2.5%. The previous scenario was a hike by 50 bps but CPI data from the US changed the situation. To add, the latest CPI data reached 9.1% YoY, and speculations about a 100 bps rate hike have been rising. This negatively affects yellow commodity. 

We analysed also: Citigroup rises more than 10% after the results

Gold is a non-interest financial asset. This means another financial asset with a higher interest rate is more attractive to investors. Inflation rises and the central bank has to fight with it. Monetary policy is set and it is not changing, for now. Based on this, there is a very high probability that the negative influence on gold will persist.

Tomas is a professional trader and money manager on foreign exchange market from 2014. His main domain are commodities. Experiences gained due this period are transformed to consul...

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