Gold steadies in the quiet before the storm

At $1,807.17, gold price is slightly retreating in the midday US session as markets are on holiday. Bond markets are closed on the occasion of the US Independence Day, but the US dollar has seen two-way price action which has both supported and sunk gold at the start of the week.

Technically; the precious metal is trapped in a consolidation range, moving within a $10.29 range around Friday’s highs. A break of today’s lows could entice a long squeeze and potentially encourage more selling for a downside continuation below $1,785 for the sessions ahead:

Despite being down on the day, gold remains above its lowest level scored since early February which was made on Friday amid the prevalent risk-off that had supported the US dollar. The precious metal was also pressured after India increased its import tax after a ballooning trade gap pushed the rupee to a record low.

This could weaken demand just as outflows from gold-backed ETFs pick up. Rising inflation has raised the likelihood that central banks will aggressively hike rates, dampening the appeal of the precious metal.

Despite the precious metal’s safe-haven attraction, gold is a non-interest-bearing asset class which is keeping a lid on advancements in gold at times of risk-off. Gold price has disconnected altogether from market pricing for Fed hikes over the past month, and have instead grown their relationship with the USD, pointing to a smaller magnitude of characteristic flows for the precious metal.

Liquidity is exhausted from global markets, and gold flows have not been spared. After all, the massive amount of potentially complacent speculative length from proprietary traders in the precious metal does not appear to be associated with the Fed’s stance nor with a stagflationary view of the globale economy.

The US dollar at the start of the week was weaker until the start of the New York session, bleeding out from the two-week high made on Friday. Reports that the White House will announce an easing of some Chinese tariffs later this week in an attempt to dampen elevated inflation helped inject some optimism back into markets on Monday.

Friday’s data showed that the Eurozone inflation was surging to another record. This has hardened the case for the ECB to raise interest rates later this month for the first time in a decade. However, moderate action is expected in comparison to the Fed and the divergence between the two central banks could be perceived to be more favourable for the US dollar in the medium term.

For the week’s calendar, Nonfarm Payrolls is expected to show that Employment likely continued to advance firmly in June but at a more moderate pace after three consecutive job gains of around 400k in March till May. The minutes of the FOMC’s June meeting will also be eyed.

High CPI inflation and nascent signs of de-anchoring inflation expectations forced the Fed to amp the pace of rate tightening. The meeting minutes are likely to offer further colour around the Fed’s more hawkish reaction function.