Weekly Market Analysis / 19 - 23 July 2021

After closing the previous week in the neutral territory, the price of gold consolidates ahead of the Federal Reserve interest rate decision on July 28 as the central bank is expected to retain the current policy, but a change in the forward guidance for monetary policy may produce headwinds for bullion if the central bank shows a greater willingness to scale back its emergency measures. 

The semi-annual testimony from Chairman Jerome Powell suggests the FOMC is in no rush to switch gears as the central bank head tells US lawmakers that “reaching the standard of ‘substantial further progress’ is still a ways off,” and the central bank may attempt to buy time ahead of the quarterly meeting in September as Powell pledges to “provide notice well in advance of an announcement to reduce the pace of purchases.”

As a result, the Fed rate decision may keep US yields under pressure as if the central bank stays on track to “increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” but indications of a looming exit strategy may drag on bullion as Fed officials forecast two rate hikes for 2023.

What happened last week?

In the absence of high-tier macroeconomic data releases and fundamental developments, risk perception remained the primary market driver earlier in the week. The sharp decline witnessed in Wall Street’s main indexes on Monday and Tuesday allowed the greenback to find demand. However, gold also capitalized on risk-off flows, suggesting that the precious metal is looking to recapture its safe-haven status and limited XAU/USD’s upside.

On Thursday, the US Department of Labor reported there were 419,000 initial claims for unemployment benefits in the US during the week ending July 17

The European Central Bank (ECB) announced on Thursday that it left the interest rates unchanged on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.

Short-Term Outlook

We’re going to be watching the price action and reading the order flow at $1770.40 over the short-term to determine if the buying is starting to become stronger than the selling at this level.

If $1770.40 fails as support then look for the selling to possibly extend into $1756.80. If this fails then look for a possible acceleration to the downside with the next target bottom at $1725.50.

Essentially, we’re going to be watching to see if the liquidation selling will continue, or if counter-trend value-seekers will step in to stop the price slide.