- Summary:
- In this article, we look at the recent gold price action and why it sending mixed pictures about inflation in the United States
Gold price is struggling. Its price has declined to $1,695, which is the lowest it has been since June last year. Also, it is also almost 20% below its all-time high of $2,075.
Gold and inflation paradox: Gold is a precious metal that has no major use in the industrial space. Instead, most of the mined gold is bought by investors and central banks. It is usually viewed as a hedge against inflation. Yet, in the past few months, the gold price has been pressured even though inflation is rising.
In the United States, the headline consumer price index has risen to 1.4% and there is a possibility that it will keep rising. Indeed, the inflation expectation index has risen to the highest level since 20o8. Therefore, the paradox in the market is why the gold price rose in 2020 during a period of low inflation and fell this year as the situation improves.
The current price action in gold is mostly because analysts believe that the Federal Reserve will either raise interest rates and start tapering earlier than expected.
Gold price forecast
On the four-hour chart, we see that the XAG price has been falling in the past few months. Recently, it moved below the descending triangle pattern. Also, the price is between the middle and lower lines of the Donchian channels. Therefore, I believe that the metal’s path of least resistance is lower. As such, the price will likely drop to the next support level at $1,600. Still, in the long-term, the metal’s price is relatively bullish.
Gold chart
