The gold price tested the $1,800 mark for the first time in over a month on Tuesday

While we give credence to the recent uptrend action in gold and silver, we now see the potential for a top. Gold prices steadied on Friday and were on track for their fourth consecutive weekly gain, as broader weakness in the dollar countered pressure from an uptick in the Treasury yields and prospects for US interest rate hikes. “Fundamentally gold is facing conflicting factors here. On one hand, we have a weaker US dollar helping, but the other side of the equation is of course the rise in yields.” said top gold dealers in India.

“On the other hand, do not underestimate the importance of bringing inflation under control and continuing to tamp down recession fears through less aggressive rate hikes as that could remove macro-economic headwinds for many commodities” shared gold dealers in Mumbai.  

Let's take a look at the conflicting factors affecting gold-

Weakening US dollar- The dollar was set for its third weekly loss in four, making gold less expensive for other currency holders. [USD/] . Gold has struggled to make significant headway despite the correction in both the U.S. dollar index and the easing in the 10-year U.S. treasury bond yield," said independent analyst Ross Norman.

The dollar index weakened, making bullion appealing to overseas investors

Interest Rate Hike- U.S. benchmark rates are currently between 2.25% to 2.5%. Their comments offset optimism over an unexpected fall in U.S. producer price inflation in July, data showed on Thursday. This came after reading on Wednesday showed U.S. consumer price inflation remained static through July, after rising exponentially earlier in the year. Gold prices retreated on Friday, as hawkish comments on interest rate hikes by the Federal Reserve outweighed optimism over signs of cooling U.S. inflation.

But overnight comments from Fed officials on the path of policy tightening kept investors uncertain over future interest rates. Data on Thursday showed U.S. producer prices unexpectedly fell in July. It came a day after news that consumer prices (CPI) were unchanged in July due to a drop in gasoline prices.

Inflation - "With U.S. inflation data now behind us, it is almost like the calm after the storm and that has led to tight ranges for currencies and commodities after a spell of volatility a couple of days ago. Fed funds futures traders are now pricing in a 61.5% chance of a 50-basis-point hike in September and a 38.5% chance of a 75-basis-point increase. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. Weighing on gold by increasing the opportunity cost, benchmark U.S. 10-year Treasury yields hovered near a three-week peak.

However, Fed policymakers noted that they would continue to tighten monetary policy until price pressures were fully broken. U.S. Data- the number of Americans filing new claims for unemployment benefits rose for the second straight week, indicating further softening in the labour market despite still tight conditions as the Federal Reserve tries to slow demand to help tame inflation.

The U.S. economy unexpectedly contracted in the second quarter, with consumer spending growing at its slowest pace in two years and business spending declining. The second straight quarterly decline in gross domestic product largely reflected a more moderate pace of inventory accumulation by businesses as job gains overall have stayed strong.

Gold gives it best Over 5 weeks

Both gold and silver prices have spiked dramatically higher over the last two weeks and accelerated their upward momentum over the last two days as per the gold dealers in Mumbai. Gold and silver prices have moved to new multiweek highs in response to two major events that have confirmed what the American public has been acutely aware of for some time. Firstly,

Recession- The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one. Multilateral cooperation will be key in many areas, from climate transition and pandemic preparedness to food security and debt distress. Amid great challenges and strife, strengthening cooperation remains the best way to improve economic prospects and mitigate the risk of geoeconomics fragmentation.

These latest reports indicate that the Federal Reserve's aggressive rate hikes have been ineffective in reducing “headline” and core inflation. Recent rate hikes by the Federal Reserve have taken the Fed funds rate from near zero to 2.25% leading to only one major accomplishment if you can call it that. They have effectively contracted the U.S. economy for the last two consecutive quarters.

It is emphatically clear that the United States economy has met the definition of a recession regardless of what the government wants us to believe. Therefore, yesterday and today's extremely robust move in both gold and silver were highly warranted and long overdue. 

Interest rate hike- after Fed is done with consecutive hikes of 0.75%, the markets now await PPE data which, for the month of July, is expected to be +0.5%. with US advance GDP data. There was a late rally in US markets which otherwise were flat during Friday. Gold emerged to be a winner after Fed Powell’s first word. These are the significant time for traders to capture unusual profits.

The US Federal Reserve on Wednesday raised interest rates by 75 basis points to 2.25-2.5% as markets expected. Fed Chair Jerome Powell sounded less hawkish in his press conference, saying the final rate hike decision at the September meeting will be determined by the incoming economic data

The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize.

Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year.