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The XAU/USD Gold Price Outlook bears creep in, yet calls from new heights can't be ignored

Daniel Rogers

Jul 25, 2022 14:47

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Although statistics released on Friday revealed that US economic activity contracted for the first time in almost two years in July due to a slowdown in services outweighing expansion in manufacturing, gold is selling at a discount to the dollar at the start of the week. The XAU/USD exchange rate is $1,722.30 with a day's trading range of $1,719.98 to $1,727.66.


The US Composite PMI Output Index dropped sharply to 47.5 this month from a final reading of 52.3 in June, suggesting the US may be entering a recession. This drop occurred on Friday. However, safe-haven flows helped the greenback on Friday night as investors fled equities in response to disappointing corporate announcements and boosted the dollar.


However, according to the earlier analysis, Gold price might be on the approach of a huge correction, the Fed meeting will be important, and the gold price has reduced a major price imbalance on the weekly chart in advance of a crucial event in this week's Federal Open Market Committee meeting.


After the hefty 75bp rate rise in June, the Federal Reserve is widely predicted to implement another increase in July, bringing the target range for the Fed Funds rate to 2.25% - 2.50 %. By doing so, the Committee's policy position would be aligned with its anticipated longer-term neutral level. In addition, Top1 Markets analysts expect Chair Powell to maintain flexibility by keeping the door open to subsequent rate hikes of 75 basis points.


Our analysts say that even if the gold price were to rise, the average position held by prop traders would still be about twice as large as normal, implying that a great deal of pain would resonate across gold markets if prices were to fall down. As there has been no sign of a gold market breakdown yet, it is likely that the recent gain will fizzle out when confronted with a sea of bids.