Gold prices stabilized today while the dollar rose, while investors are cautious ahead of US consumer price readings that may be critical to the Fed’s decision on when to begin withdrawing asset purchases.
This week, we are waiting for several important economic data for the United States, starting tomorrow in the inflation rate according to the consumer price index, and expectations indicate the possibility of annual inflation to decrease from 5.4% to 5.3%. We will also wait for the retail sales data, which is expected to show us a contraction in Sales last month August.
The slowdown in the pace of the US economic recovery is a reason why the Fed was not in a hurry to withdraw all its emergency stimulus and reduce its asset purchase programs, which currently amount to $120 billion per month, but the slowdown in the pace of recovery is not a reason for the Fed to continue with these massive stimulus.
The inflation rate may show a decline according to expectations, but we should not neglect the fact that inflation is still high in the United States, with levels above 5% being the highest since 2008, and the decline in prices is not commensurate with the drop in oil prices.
Energy prices are one of the main influences on inflation, specifically in the consumer price index, and last month, oil prices fell about 7% in relation to light American oil, and gasoline prices fell by nearly 8%, but what we are witnessing in a decrease in inflation according to the consumer price index is just One decimal point according to expectations.
Last July, the prices of energy tools increased by 23.8%, when inflation according to the annual consumer price index was at 5.4%. consumer prices.
In the Fed’s belief, inflation in the United States is transient inflation, and it may fall back again later, but the decline in inflation itself, along with the retail sales contraction, if it is actually proven, are reasons that will make the reduction of asset purchase programs in the Federal Reserve tentative and slow as well.
The European Central Bank, RBA and other central banks have scaled back their economic stimulus programs and this is where traders are really starting to believe that the Fed may follow the lead of other central banks sooner or later.
But this week’s data may determine when the Fed will start reducing its programs, especially if it came in higher than expectations, which may pave the way for the Fed to start reducing its stimulus programs starting next month, but if the data comes worse than expectations, it may be postponed to reduce purchase programs Assets until November or December.
Gold usually benefits from high inflation expectations, meaning that the correlation coefficient between gold and inflation expectations is a positive direct correlation coefficient. However, many mistakenly associate the movement of gold with the current inflation, as the precious metal is not related to the current levels of inflation, but rather to the expectations of future inflation.
The future expectations of inflation appear to be somewhat negative, and although inflation rose in the Eurozone to 3% and in the United States to 5.4%, expectations show that this rise is temporary, and this is the first thing that prevented the occurrence of strong upward waves.
Another thing that caused gold to drop is the US dollar. The dollar is the king of financial markets when it comes to the prices of commodities, assets and precious metals. The rise of the dollar negatively affects the ability of the precious metal to rise.
In addition, gold is currently affected by the decrease in purchasing demand from speculators, especially after its failure to stabilize above $1800, which is considered a psychological barrier, which prompts traders not to maintain purchasing financial positions for a long time.
In the slightly longer term, specifically since the middle of last June, gold prices traded most of the time between the 1835 range from the top and 1750 from the bottom, and despite leaving this range to reach 1678, this exit did not last for more than 3 days throughout that period, Here we can note that gold is currently in a limited range.
The rise of the dollar, and expectations of lower inflation, offset by fears of a global economic slowdown and the spread of the mutated Corona strain, which may keep gold prices within limited ranges until the 22nd of this month, when the US Federal Reserve’s decision regarding its monetary policies is issued.
And in the event that there are developments in the Fed’s trends already, gold may leave this range, otherwise it will remain in it until there are adjustments in future monetary policies.
As for the short term, gold trading below the psychological barrier of $1800 may keep the price within the lower limit of the trading range, which means more temporary downside pressure.
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