The US is currently in a recession as the economy has declined for more than two quarters. This is, of course, not something unique to the States - most global economies are either at a high risk of seeing a recession or experiencing one.
The UK is the latest economy to confirm that GDP has declined again. This morning, the UK's GDP figure declined by 0.3%, a sharper decline than expected.
So far, the US has maintained that the economy is not in a recession due to certain positive factors, such as the employment sector. We have heard this from the President, the Treasury, and the Federal Reserve. Though traders should note that employment figures are a “lagging indicator.” In other words, one of the last figures to reflect a recession.
Yesterday the US President admitted, for the first time, that the US economy is heading for a slight recession. This is now putting the White House in line with economists’ predictions. Citibank was the first investment bank to advise that its views align with Biden’s.
According to Citi’s US economist, Veronica Clark, the organization believes that the US economy will witness a recession at the beginning of 2023 and will most likely see the unemployment rate rise to 5.5%. This is likely to strongly affect the US Dollar, US equities, and correlated assets such as gold.
During this morning’s Asian session, US equities have slightly risen but remain within the current price range which formed over the past 24 hours. The above news is not necessarily positive for investor confidence and risk appetite.
XAU/USD - Technical View
The price of the XAU/USD has slightly risen this morning despite being under pressure over the past week due to the appreciating US Dollar. The 0.31% rise this morning is currently not showing any major indication of stronger bullish price movements.
However, the price has reached a clear support level at $1,661 which can be used as a sell indication throughout the day if the price forms a bearish breakout.
Two opposing factors influence the price movement of the instrument. Firstly, the price is being pressured by the US Dollar, as previously mentioned. Secondly, rising interest rate hikes can also lower the demand for gold. The Consumer Price Index (CPI) will most likely shed some light on the Fed's stance over the next two months.
Also, the price of gold is negatively affected by the growing yield of US bonds, which are also considered safe-haven assets. Bond rates rose by a noticeable 2% over the past week, which makes them more attractive to investors looking to mitigate risk.
On the other hand, we also have potential elements within the market which may support prices in the longer term. However, traders should note that obtaining confirmation from price analysis is essential. The current risk of a recession is a serious price driver for XAU/USD.
A recession is known to spark a sharp decline in investor confidence due to lower economic activity and higher unemployment. As a result, more investors turn to gold.
If a recession does become a reality along with higher unemployment, it may potentially spark support for gold. This morning, the technology giant Intel Corp (NASDAQ:INTC) advised that they plan to cut personnel by up to 20%.
According to company officials, the firm has seen a drop in sales and also predicts weaker economic activity over the next 12 months. This is the first company to advise a major cut in personnel, but many doubt they will be the last.