Concerns about the state of the global economy after Brexit are gradually fading away. Investors’ risk appetite is increasing and they started to buy risky assets.
Japanese Government recently announced introduction of the decisive measures to curb deflation in the country and prevent excessive rise in the Yen, which will include flexible fiscal policy and structural reforms.
It is also likely that expansion of the quantitative and qualitative easing programs in Japan (QQE) may be accompanied by the additional purchase of government bonds by the Bank of Japan.
At the same time, positive US macroeconomic data give grounds for the interest rate increase this year.
It became known that retail sales in June rose by 0.6% (vs. the forecast of + 0.1% and + 0.2% in May). According to futures for Fed rate probability of a rate hike in September is 18%, although last Friday it was 12%. Probability of a rate hike rose to 40% from 34% in December. The yield on 2-year Treasury bonds is also increasing, causing sales.
All these facts help the rise in the USD against the Yen and gold.
The rise in the USD causes the decrease in demand for gold, as the gold becomes expensive for the holders of the other currencies. In the period of the high interest rates gold cannot compete with the other assets, because gold does not bring interest income and the cost of borrowing for its storage and purchase is increasing.
Stronger position of the USD in the market will increase expectations of the interest rate hike in the United States, which will increase pressure on the price of gold.
At the same time, the price of gold is supported by the uncertainty and volatility in the financial markets. Some economists believe that the rise in price above the levels of 1323.00 and 1300.00 give a chance that by the end of the year the pair XAU/USD will go up to the level of 1400.00.
Economic calendar is uneventful today. Volatility in gold price may increase tomorrow, especially at 10:30 (GMT+2), then British inflation indices will be released.