Gold approached a ten-year high amid inflation weakening in the U.S. The gold price volatility might still persist over the current week, as a number of important events are expected in the second half of the week: the BOJ’s decision on the interest rate, releases of updated information on the Consumer Price Index in Canada, the EU and Norway. There will be no crucial events in the upcoming couple of days, thus the gold price correction is possible after a long period of growth.
As it was stated earlier in our forecasts, weakening inflation will serve as a growth driver for the gold prices. Analysts confirm this connection too: “Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates,” said Ed Moya, analyst at online trading platform OANDA.
Other inflation-sensitive indicators were also affected by inflation lowering. Thus, the Dollar Index declined, the yield on the 10-Year U.S. Treasury note also decreased, while the S&P Index rose.
It’s also necessary to look separately on the yield on the 10-Year U.S. Treasury and the Dollar Index. The mentioned indicators have great impact on the price of gold. The U.S. bonds are still trading at high levels despite last week’s correction. The yields have approached the levels of extreme of September and June 2022. A rebound from the current price is possible, as well as a downside breakdown and acceleration of the movement. The second possibility doesn’t seem to be very likely, as strong drivers are required for a notable downward movement of the yield.
Meanwhile, the Dollar Index faced a significant correction of its last year’s highs. It’s necessary to pay attention to the current Index price. The Index corrected by 50% exactly from its 2021 lows to its high in 2022. The correction is shown via Fibonacci levels in the chart below. Considering analogies from the past, this level should serve as strong support for the dollar. Besides that, the current Index price corresponds with the level of its maximum correction in 2022, which is also a support. So, a bounce up or steadying at the current level is now looking more preferable, which might have a negative effect on the gold price.
The Dollar Index
As shown by technical analysis, the gold price growth accelerated, and it reached the resistance level where it was trading flat in spring last year. The correction target might be testing the previously indicated trend, or returning to the Fibonacci level of 0.618, which is $1897. Stop-loss is set when the price highs are renewed around $1930.
Decline of the gold price:
Take profit – 1 897
Stop-loss – 1 930