Gold price forecast:
- gold prices (XAU/American dollar) for the third day in a row, and reached its lowest level since early April
- U.S. dollar Strength and rising US yields are the primary bearish drivers for the precious metal
- This article takes a look at the key XAU/USD technical levels to watch in the near term
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Gold prices suffered a major setback on Thursday, falling for the third consecutive session and reaching their lowest level since the beginning of April. In early New York afternoon trading, XAU/USD fell 1.4% to $1,960, dragged down by a stronger US dollar and bond yields rising quickly after encouraging macro data and news that the US Congress is making progress in negotiations to raise the debt ceiling. .
Focusing on catalysts today, corresponding prior week jobless claims and Philadelphia Fed industrial production for May were much less negative than expected, reinforcing the view that business activity remains remarkably resilient despite several headwinds, such as tightening lending standards. Static inflation and non-stop talk of recession in the financial media.
With the economy still better than expected, the market is gradually pricing in aggressive discounting for the second half of 2023 in the wake of the US banking sector turmoil that erupted in March. Despite some concern, it appears that traders are starting to take a stand for the “higher for longer” interest rate regime again, which is a major risk for precious metals.
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Optimism about the prospect of a deal to raise the US borrowing ceiling and avoid a federal default also appeared to hurt safe-haven assets, including gold. On the context front, sentiment turned for the better after House Speaker Kevin McCarthy said the House of Representatives in Congress may vote on a deal as soon as next week, a sign that the discussions are moving in the right direction.
Although the fundamentals are still somewhat constructive for gold, the situation could change. For example, if the US economy can stabilize and avoid a recession, rates may remain high for longer than initially expected. This scenario would undermine non-yielding assets, strengthening the US dollar in the process. For this reason, traders should closely monitor the incoming data in the coming weeks and months.
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Technical analysis of gold prices
After breaking the cluster support level at $1,975, gold prices accelerated a decline, falling to its weakest point in more than a month on Thursday.
While the recent decline appears to be a corrective move within a medium-term uptrend, the outlook could turn negative if the bears manage to maintain pressure on the market.
In case of a larger decline, initial support appears near $1,920, which is the lower bound of the ascending channel in operation since September last year. The bulls do not want to see the price break this limit, otherwise the sellers may try $1,895, which is the 38.2% Fibonacci retracement of the September 2022/May 2023 high.
On the flip side, if the bulls regain control of the price action and spark a recovery, the technical resistance lies at $1,975, followed by the psychological $2,000 mark.