Daily Market Recap – GOLD Yellow metal rises above $1,800

Growth in service sector activity slowed more than expected in June. After reaching a record 64 points in May, the ISM services index came in at 60.1 last month, compared with a consensus of 63.5.

Thus, in the bond market, interest rates eased significantly. The yield on 10-year U.S. debt was 1.35%, the lowest since February and down sharply from the previous day's close at 1.42%.

In addition, inflationary fears have been haunting investors' minds for several months, fearing a monetary tightening, despite the reassuring comments of central banks who consider it transitory. Gold is traditionally considered a hedge against inflation.

The yellow metal is actually correlated to real interest rates (interest rates minus inflation). If interest rates fall, the price of gold tends to rise. It thus benefits from a favorable arbitrage phenomenon when real interest rates fall.

The evolution of inflation will determine the fate of the yellow metal in the months to come. If inflation were to rise, the ounce would regain favor with investors. Conversely, if the short-term price surge does not turn into sustainable inflation, gold could come under pressure.

The next key catalysts for gold will be the release of the Fed Minutes on Wednesday and the media appearances of various FOMC members leading up to the next Fed meeting at the end of the month.

The Fed Minutes will provide an opportunity to hear what was said three weeks ago when a majority of members began anticipating a first Fed rate hike in 2023. With these new details, market participants should know a little more about the timing of the Fed's monetary policy normalization, which should influence the bond market and therefore gold.

Currently, prices are moving around $1,805, so breaking through the 2011 high of $1,910 would allow the market to confirm this long-term trend continuation pattern.

In daily data, the market has been trying to start a bullish recovery for several sessions. Breaching the $1,800 mark is a key step, as it opens the way for the bullish flow to restart and start a new leg up.

(Chart Source: Tradingview 06.07.2021)

Gold is still carried by a bullish momentum well in place. Of course, a break below the $1,750 trend line would not bode well for the future.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.