On Thursday the gold market experienced a sharp and abrupt decline as the uncertainty surrounding the global economy continued to dictate the direction of commodity prices.
The downturn was ignited by a series of unfavorable developments across multiple regions. For instance, economic data from the United Kingdom showed Consumer Price Index (CPI) at 8.7% growth, far surpassing the estimated 8.4%.
Furthermore, the Core CPI exceeded forecasts, registering a significant 7.1% increase compared to the projected 6.8% growth.
As investors grappled with the news from the UK, another blow came from across the Atlantic as the Federal Reserve Chair hinted at potential interest rate hikes in the coming months. This dragged on the already uncertain commodity market given that higher inflation would impact the attractiveness of gold and likely bolster U.S. Dollar attractiveness on the other hand.
Adding to the turmoil, the Swiss National Bank joined the fray by increasing its policy rate from 1.50% to 1.75%. This move further exacerbated the decline in gold prices, as expectations of additional rate hikes loomed on the horizon.
Meanwhile, the Bank of England made a bold decision, delivering a substantial 50-basis point hike from the official 4.50% to 5%, signaling the bank’s commitment to combat inflationary pressures.
In the United States, economic indicators added to the downward pressure on gold, especially with a marginal decrease in Unemployment Claims. Existing Home Sales also showed signs of weakening while the CB Leading Index projected a decline of 0.8%.
The combination of these global economic factors sent shockwaves through the gold market, resulting in a steep decline. Investors and traders found themselves grappling with the uncertainty and volatility that accompanied such a drastic turn of events.
Technical analysis of gold price revealed a bearish trend, with the price retracing to the 50% level at $1,935 before plummeting even further. The weekly pivot point at $1,931 served as a significant support level, but market sentiment remained overwhelmingly bearish.