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Fears of economic recession increase, what will gold price next week?

Gold price next week may continue to recover because investors are concerned that the FED’s rapid interest rate hike will push the US economy into recession.

The price of SJC gold bars has also decreased following the decline of the world gold price from 70.5 million dong/tael to 70.1 million dong/tael.

The price of SJC gold bar this week has also decreased following the decline of the world gold price from 70.5 million dong/tael to 70.1 million dong/tael.

After the FED raised the basic interest rate by 50 percentage points in the last meeting, the international gold price had a sharp drop from 1,909 USD/oz to 1,866 USD/oz and closed at 1,882 USD/oz.

In the Vietnamese gold market, the price of SJC gold bars has also decreased following the decline of the world gold price from 70.5 million dong/tael to 70.1 million dong/tael with very quiet transactions.

Although the Fed’s basic rate hike has been reflected in the market before, this still affects investors’ sentiment, contributing to pushing the USD-Index above 104 points – the highest level in 20 years. via. Because, the market still expects the FED will continue to increase the basic interest rate in the upcoming meetings, making the USD interest rate even bigger than the interest rates of other major currencies. Therefore, the gold price was under strong adjustment pressure after the above decision of the FED.

However, many experts and investors expressed concern about the fact that the FED will rapidly increase interest rates in the context of a sharp decline in the US economy (GDP in the first quarter of 2022 decreased by 1.4% compared to the same period last year). will plunge the country’s economy into a spiral of recession. This is clearly shown by the 2-year bond yields tending to increase strongly because investors are expecting the FED to continuously increase interest rates; and 10-year interest rates increased more slowly, sometimes even decreased because investors were concerned that the Fed’s interest rate hike would hinder the US economic recovery. Therefore, the yield difference between these two terms is currently only 0.38%, and sometimes even reversed.

Another signal that the US economy is showing signs of slowing down is the labor market. The number of non-farm payrolls (NFP) in April stood at 428,000 jobs, unchanged from the previous period, while the unemployment rate remained at 3.6%, although this is a low level in many year, but there was no improvement over the previous period.

What is more worrisome is that US inflation pressure is still increasing. CPI in March jumped to 8.5% year-on-year, mainly due to rising fuel and food prices. This shows that the Russia-Ukraine war as well as the US and Western sanctions against Russia and China’s zero covid strategy have contributed to inflation in the US. Therefore, if this war drags on, US inflation will climb even higher.

Mr. Colin, an independent foreign-exchange analyst, said that the sharp increase in US inflation was mainly due to cost-push, so the Fed’s interest rate hike could not immediately bring down inflation. Therefore, if the Fed raises interest rates too strongly, it will cause the US economy to fall into a recession, leading to a global recession. “The economic slowdown, while inflation skyrockets, will put the US economy at risk of falling into a state of stagflation – which will only get worse. Therefore, the Fed will probably be more cautious after about 2-3 more rate hikes,” said Colin.

Fears of economic recession may push gold prices next week to continue to recover.

Fears of economic recession may push gold prices next week to continue to recover.

According to Mr. Colin, the gold price’s correction to 1,850 USD/oz this week is necessary to consolidate further momentum in the near future. Because of the increasing inflation in the context of the geo-economic crisis, geopolitics in many regions of the world are complicated, which will further increase the role of gold as a haven. “Gold price is still in the medium and long-term uptrend channel, if gold price drops to the range of 1,800-1,835 USD/oz, it will be a good opportunity for long-term investment”, Mr. Colin recommended.

Next week, the US will announce the consumer price index (CPI) and producer price index (PPI) in April, which are two important indicators to assess the current inflation pressure of the US. Therefore, if these indexes continue to increase strongly year-on-year, there may be a temporary negative impact on gold prices next week as this will increase expectations of a stronger Fed rate hike. However, the gold price correction will be an opportunity to buy. On the contrary, if CPI and PPI decrease compared to the previous period, gold price will continue to recover next week.

Mr. Edward Moya, Senior Analyst at OANDA, thinks that gold prices will likely continue to recover next week as fears of a US recession increase, with key resistance at $1,900-$1,920/oz. , while the first support is at $1,850/oz, followed by the $1,800/oz zone.

According to DDDN

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