WIKIFX REPORT: Gold price back to near $1700: Will the metal bounce back?

If the metal breaks below the $1700, the slump will quickly extend toward the $1680/70 mark. The gold price came close to hitting $1700 in the past 12 hours. The reason for such significant weakening was created by the substantial strengthening of the US dollar and the sharp rise in interest rates around the world. Especially the US central bank, which is pursuing an aggressive monetary policy to get inflation under control.

Bullion prices extended their weekly decline as a stronger dollar and higher interest rates continued to hammer investment demand in the precious metals. The precious metal has been under intense selling pressure since Friday after the aggressive speech from Fed Chair Jerome Powell. On Friday, at a speech at the Jackson Hole symposium, Powell said that the US Central Bank will raise and maintain rates at a restrictive level until inflation falls substantially.

How gold prices connect to inflation and interest rates？How gold prices connect to inflation and interest rates？

Gold price has been on a bearish trend for the last 6 months even though the metal is often considered a hedge against inflation because we witnessed huge surges in inflation around the world since the start of the pandemic. The unprecedented rise in retail inflation numbers over the last few months led to the central banks of several major economies winding down their asset purchase programs and raising interest rates.

Gold is highly sensitive to rising interest rates since higher rates dent gold's appeal as they increase the opportunity cost of holding non-yielding bullion.

Like other central banks, US Federal Reserve also started to raise interest rates to slow the economy and bring inflation down. In July, the FOMC raised its target range for the federal funds rate by 75 basis points for a consecutive month and the central bank is expected to raise interest rates throughout the year.

Gold price technical outlook

Currently, gold is sought after, not just for investment purposes and to make jewelry, but it is also used in the manufacturing of certain electronic and medical devices. As a result, gold is often seen as a hedge against inflation. Inflation is when prices rise, and by the same token prices rise as the value of the dollar falls. Technically the overall momentum remains bearish. On the downside, $1700 is the crucial support area to watch.

If the metal breaks below the $1700, the slump will quickly extend toward the $1680/70 mark. However, considering the recent sell-off near-term rebound from $1700/10 support remains corrective in nature. While If the US dollar regains further upside strength, then we could see an extension of the weakness in the gold price. On the upper side, $1730 and $1745 will act as an immediate and $1765 will be a critical resistance zone, a fresh demand for the metal can be anticipated once it rises above the 1765 resistance.