Gold rallies toward $4200
22nd July
Key takeaways
Gold jumps over 2% on Wednesday
Weaker dollar and dip buyers fuel upside gains
Key levels: $4100 and $4200
Lukman Otunuga
Head of Market Research
Gold exploded higher on Wednesday, punching above $4160.
A weaker dollar and dip buyers injected fresh inspiration into bulls.
These gains came as Treasury yields remained elevated and geopolitical risk stimulated fears around rising inflation.
While gold may edge higher on technical factors, the underlying bearish fundamentals may cap upside gains – especially with oil prices up over 3% this morning.
Surging oil prices may fuel fears around conflict-induced price pressures.
This is likely to weigh on gold in the medium term if this bolsters expectations around higher US rates and supports the dollar. Traders are currently pricing a near 80% chance of a Fed hike by September with a sustained rise in energy prices reinforcing these bets.
Gold’s outlook is likely to be influenced by ongoing geopolitical risk and anticipation ahead of the Fed decision next week. While gold may trade higher on technical forces, fundamentals in the form of rising oil prices, expectations around higher rates and a stronger dollar may cap upside gains.
Traders are currently pricing in a 20% chance of a Fed hike this month, with this rising to near 80% by September. Mounting geopolitical risk or strong US economic data may impact these expectations, influencing gold which remains highly sensitive to interest rate expectations.
Despite the bearish fundamentals, the technicals swing in
favour of gold bulls with a strong daily close above $4100 opening a path
toward $4170 and $4200. Weakness below $4100 may open a path toward $4000.
Frequently asked questions
The precious metal is up over 3% as of writing.
The recent jump in prices could be based on a weaker dollar and dip buying.
$4000, $4100 and $4200.
