Gold prices
The US inflation runs hot, as seen by the YoY data released yesterday. It reached 5.4%, well above the Fed’s target and definition of price stability. Later today, Fed Powell’s semiannual testimony will focus on convincing its audience about the need to maintain the accommodative measures in place. But it will have a hard time doing so, given the rise in inflation.
Gold has been traditionally viewed as a hedge against inflation. Only this time it failed to do so.
In fact, gold is flat over the year, while inflation is up 5.4%. Where is the inflation hedge that it is supposed to offer?
How about Bitcoin? It is down 50% from its 2021 highs and fails to bounce. During yesterday’s inflation release, Bitcoin declined.
Investors are trapped because alternative investments in precious metals failed to play their inflation hedging role. Other commodities are up sharply, but not precious metals.
After yesterday’s release, investors found shelter in the US dollar. They bought the greenback on expectations that the Fed will be forced to lift its rates sooner rather than later. And, it will do so ahead of other major central banks, which are not pressured by higher inflation.
The short-term perspective looks bullish for the price of gold, providing the market does not fall below $1,750. An inverse head and shoulders pattern formed since the second half of June and now the price struggles to break above the neckline.
Bulls may want to buy a breakout above $1,820 and stay long for the measured move toward the $1,860 area. A move below $1,750 would invalidate the bullish scenario.
On the other hand, a move below $1,750 would signal a bearish breakout. Bears may want to sell such a breakout, with a stop at $1,800 and a take-profit level set by using a risk-reward ratio of 1:2.
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