Market Overview

Markets seem to be full of paradoxes and here is only one. Market participants managed to have a breather from swift monetary policy position changes last week after the Federal Reserve (Fed) announced possible earlier than expected interest rate hikes in 2023 and the start of the stimulus tapering discussion. This announcement was enough for a short correction of risky assets and the U.S. Dollar. But this week, Fed’s Chair Jerome Powell surprisingly changed the central bank’s rhetoric again by claiming high inflation in the United States is temporarily being provoked by stimulus measures launched last year and lockdowns.

After this statement, it seems that investors reevaluated  the current situation. With this in mind, a number of investors came to the notion that  the year of 2023 is still far away and monthly stimulus measures of $120 billion are still in place and will remain so for the near future. So, high inflation might not stop loose monetary policy from continuing for quite a long period.

It seem that as a result, main benchmarks bounced from the correction dips and jumped above mid-June highs that were reached before Fed monetary policy announcements. The S&P 500 broad market index slipped from 4257.2 points on June 16 to 4164.4 points, but toped a new all-time high on Friday at 4273.6 points. Brent crude prices dived last week to $73 per barrel, but this week recovered to $76 per barrel.

However, the contradiction lies in the fact that gold prices remained low, even though it could be expected that they would recover together with other markets. The yellow metal’s prices rose dramatically in recent months along with other assets mentioned above due to  the loose monetary policy in the United States. Gold prices also reacted to the Fed’s decision last week by plunging from $1866 to $1796 per troy ounce. Gold prices have shown signs of recovery, unlike other assets. But, underlying factors for gold prices rally seem to remain intact. Technically, the upside trend for gold prices that started in March have not been broken since the support level at $1757 per ounce was reached. The correction, despite some dips, has stopped at the Fibonacci retracement level of 61.8% and the fact that prices failed to go below this paramount support level may confirm that investors are not ready for a change towards the upside trend. If so, investors may believe that gold prices may catch up with other benchmarks that have already recovered. Technically strong support level at $1757 per ounce has proven its strength twice.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.