Gold Recoups Some Losses, US Debt Ceiling, Inflation In Focus

Gold prices, analysis and charts

• gold Looks like it’s set for the third consecutive week of fall
• The dollar’s strength and questions about further hikes weighed on interest rates
• The prominent bullish trend on the daily chart is under threat

The near-term climate is not constructive for the oldest financial haven of them all. Reports of progress toward raising the US federal debt ceiling weighed on the market, chiming in with the widespread belief that a deal would happen in due course because the alternative is so dire.

The general strength of the dollar could also reduce gold’s attractiveness to non-US investors.

The market may get some support from hopes that inflation is coming under control, which means interest rates may not need to go up much more, if at all. But this thesis relies heavily on data. The climate of rising interest rates tends to make life more difficult for the gold bulls as it increases the yield on paper assets while gold, famously, produces nothing.

The US Federal Reserve’s preferred inflation gauge, the Personal Consumption and Spending Pricing Series, is due for release later in the session (1230 GMT). Its “core” pricing index is expected to show an annual gain of 4.6% for the month of April. That’s disappointingly unchanged from the March reading, but it’s quite constrained by current international standards.

The chance of prices rising again in June was determined to be less than 40% by the popular “Fedwatch” tool from the Chicago Mercantile Exchange. A group, obviously not to be underestimated.

However, the general backdrop of a strong rally in global prices, the war in Ukraine, and the struggle that many national economies faced to return to pre-Covid levels of growth is very likely to limit the underlying downside for gold.

Central banks appear to be increasing their gold holdings in the face of increasing global uncertainty. They are said to have bought 1,078 metric tons of gold in 2022. This is the most since record keeping began in 1950 and more than double the amount bought the previous year. This appetite will provide meaningful support to the market.

Technical analysis of gold

Chart compiled using TradingView

The daily chart is not looking good for gold bugs, with a major bullish trend that has supported prices since the end of last year now under an apparent downward attack.

It is currently providing support very close to the current market at $1937.69. A daily and weekly closing below this level is expected, which could herald more declines. Support below is likely in the $1912 region from mid-March, but the next obvious bearish level would be $1901.80. This is the second Fibonacci retracement of the rally from the November low to the May 4 high, just above the $2000 level.

Still, the $1,950 psychologically significant point is now worth watching. The market hasn’t spent much time below this point since March 23rd, and its ability to stay above that point now could be a leading indicator in the near term.

IG’s sentiment indicators suggest that the precious metal may have suffered enough for the time being. 68% of respondents are optimistic at current levels.

– By David Cottle for DailyFX