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Gold Price Raise Drags due to The Fed Interest Rate

by Didimax Team

The price of gold tries to increase. It is especially after the newest issue of interest rate prospect that will be done by the Federal Reserve. Lately, the spot increased by 0.3% to the level of $1828.59.

Based on the expert point of view, the raising price like that is quite limited because of two factors. Those are the recession issue and for sure The Fed’s interest rate that will be done in July. 

It seems that there are two powers here which give a push for gold from two different direction. This thing hold everything in a small space. The risk of recession and development of global economic slowdown are real. 

These aspects can bring the purchase stream to gold as a safe haven asset. In the other side, people have to understand a commitment made by the Fed to handle high inflation. 

 

The Fed Still wants to Raise the Rates

One of the real action which will be taken by Federal Reserve is by raising their rate significantly. That institution still wants to do that after their leader gave a testimonial last time. 

On Wednesday, President of The Fed St. Louis said that the central banks must be brave enough to increase this rate. The aim is for sure to fight back the inflation where it must be done aggressively.

Gold is surely the right asset in a high inflation situation. But, this condition will push many central banks to raise their rates. That is why; the gold ownership cost can be more expensive.

An analyst predicted that this commodity has a slight possibility to incresse, especially in the second quarter of this year. The peak level could be around $1900.

Meanwhile, Euro Declined As Well

Another news come from Euro where this currency slumped. The cause is a PMI data from France and Germany where Those are weaker than the expectation.

Basically, that is A sign that EuroZone economy is struggling to gain an attraction. This pushes the traders to cut their bet on the big interest rate increase done by the European central Bank. 

A higher price in Eurozone means that the demands from manufacturer goods decline. It was for June at the fastest level since May 2020 where the COVID-19 pandemic was happened. 

The service and manufacturer ratio become a good barometer for the pro-cycle currencies. The ratio had been decreased sharply, especially for the United States of America 

The Concern about Recession also Has It’s Role

The dynamic or situation happwend above is usually inline with the USD abilities to survive further. This is supported by a concern that recession may be rising in the future. 

Following the market data, the prediction for rate hike is around 30 bps in July. The expectation is also cut. That is about how big the ECB will raise their interest rate is at the end of 2022.

The Euro loss also attracts dollar and makes it is further than it’s lowest position before. It also send greenback to a positive area than it’s competitors in the market. 

It was happened after a careful comment made by the head of Federal Reserve, Jerome Powell. That testimony was given on Wednesday and weighted on the sentiments. 

Several Parties Predicted That Monetary Tightening will be Loosened

In fact, market is quite sure that the Fed will raise the rate around 75 bps more in July. Some analysts also believe that Bank of England may loosen their monetary tightening or the growth will be broken.

Jerome Powell said a possibility of recession is real. That reflects a concern of financial market that the monetary tightening step taken by The Fed will break the growth. 

He also stated on Thursday in front of the House of Representative about a commitment. The fed doesn’t need any requires to fight inflation. 

They thought that global factors will be more important in pushing a further dollar strengthening. That is inline with the signs which appear from economic growth slowdown amidst the monetary tightening.

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