Outlook for gold prices:
- gold prices It failed to materialize as bond yields resumed their recovery
- Strong US economic data may push the Fed to continue raising interest rates through the second half of the year, even if policymakers hit the pause button for a while.
- This article looks at the XAU switch /American dollarLevels to watch next week
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Most read: The recovery in gold prices has run out of steam after hot US jobs data boosted returns
Gold prices (XAU/USD) witnessed a significant downward correction from May highs around $2070, down nearly 6% from those peak levels in a short period of time. Last week, bullion tried to recover, briefly reaching $1,983, but quickly reversed course and fell heading into the weekend to settle just below the $1,950 threshold.
The metal’s lack of ability to sustain bullish momentum can be attributed to the dynamics of US interest rates, specifically their recent hikes. Although yields fell moderately earlier in the week, they rose sharply on Friday after significantly stronger US jobs data, resuming their broader recovery that began in the second week of April.
Focusing on the macro front, the latest jobs report showed US employers added 339,000 workers in May, well above estimates at 190,000. Strong employment indicates that the economy is holding up well and is not yet close to recession, despite the Fed’s fast and furious tightening campaign that began in 2022.
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Related: Gold prices are at risk of a deeper correction due to higher real yields, and a stronger US dollar
The resilience of the economy and labor market may slow the return of inflation to the 2.0% target. Against this backdrop, policymakers may continue to raise borrowing costs through the second half of the year, even if they temporarily hit the pause button at the June meeting to assess the delayed effects of the cumulative tightening.
The possibility that the FOMC may have to raise its final interest rate and keep it there longer to restore price stability should keep yields high, at least in theory, boosting the US dollar in the process. This scenario is likely to weigh in on non-yielding assets, including precious metals.
For the aforementioned reasons, gold’s outlook is starting to turn bearish from a fundamental standpoint, which means that more losses could be imminent before some sort of stabilization occurs later in 2023. It also means that new record highs will have to wait and may be far from over. Reach for bullion at the moment.
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change in |
Longs |
Shorts |
Hey |
| Daily | 4% | -22% | -5% |
| weekly | -4% | -4% | -4% |
Technical analysis of gold prices
Gold’s recent cut seems to be a corrective move within a medium term uptrend, but the bias could turn very negative very quickly if prices break below $1940. This dynamic support corresponds to the lower bound of the ascending channel that has been leading the market upwards for almost a year.
In terms of possible scenarios, if XAU/USD falls below the $1,940 level, bearish pressure may gain strength, which encourages bears to launch an attack on $1,895, which is the 38.2% Fibonacci retracement of the September 2022/May 2023 high. With further weakness, we could see a move towards $1,875.
Conversely, if gold can establish a base around the current levels and turn higher, the first resistance to watch is at $1,975. Removing this ceiling could trigger follow-up buying, paving the way for a rally towards the psychological $2,000 level.
