- The strength of the US dollar still negatively affects the performance of the gold price, which retreated as a result to the support level of $1922 an ounce, before settling around the $1930 level at the time of writing the analysis.
- The gold market, like the rest of the financial markets, awaits the announcement of US inflation figures, which will have a strong and direct reaction to the future of the US Federal Reserve's policy and, accordingly, to the price of the dollar and then gold.
Asian stock indices fell after concerns about the US banking system led to a decline in Wall Street indexes and amid concerns closer to home about China's economic growth. Accordingly, the Japanese Nikkei 225 index lost 0.5% to 32232.60 in afternoon trading. Australia's S&P/ASX 200 rose 0.3% to 7,329.10. South Korea's Kospi Index rose 1.3% to 2,606.84. Hong Kong's Hang Seng fell 0.3% to 19,134.00, while the Shanghai Composite fell 0.4%, to 3,247.91.
As for US stock indices on Wall Street, the S&P 500 fell 19.06, or 0.4%, to 4,499.38, at one point falling nearly three times that. It was the fifth loss in the past six days for the index after it jumped during the first seven months of the year. The Dow Jones Industrial Average fell 158.64 points, or 0.4%, to 35,314.49, after trimming an earlier loss of 465 points. The Nasdaq Composite Index lost 0.8%, to 13,884.32.
In the United States, banking stocks declined after Moody's downgraded the credit ratings of ten small and medium-sized stocks. She cited a list of concerns about its financial strength, from the effects of rising interest rates to the work-from-home trend leaving office buildings vacant.
For its part, the Federal Reserve raised the US interest rate to its highest level in more than two decades, hoping to reduce inflation. High rates work by expressly slowing down the entire economy, increasing the risk of a recession. Much higher rates have affected banks in particular. While downgrading 10 banks and putting another six under review, Moody's said the rapid rise in interest rates had led to conditions hurting industry earnings in general.
High rates also reduce the value of the investments that banks made when rates were very low. Such conditions helped cause three major US bank failures last spring, shaking confidence in the system.
Elsewhere, later this week, the US government will release data on consumer inflation and wholesale inflation, which could influence what the Fed does next with regard to interest rates. The hope on Wall Street is that the slowdown in inflation since it topped 9% last summer will help convince the Fed that no further rate hikes are needed. Economists expect Thursday's data to show consumer prices rose 3.3% in July from a year ago, an acceleration from June's 3% inflation rate.
Gold Technical Outlook
According to the performance on the daily chart below, the general trend of the gold price still tends to decline. It may move towards stronger support levels, the closest to which are 1918 and 1900, respectively, and lower if the US inflation figures come this week, supporting more times of raising US interest.
If that happens technical indicators may move towards strong oversold levels and we can consider buying gold from them. On the other hand, over the same period of time, the direction of the gold price may change to bullish in the event that prices move towards the resistance level of $1975 an ounce again. I still prefer to buy gold from every downward level.
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