Gold (XAU/USD) Bears Fail to Find Acceptance Below 100-Day MA, Where to Next?

Gold prices, charts and analysis:

gold Prediction: neutral

Read more: Gold Weekly Forecast: Gold (XAU/USD) prices are heading precisely towards a choppy week

Gold has been on a wild swing this week as volatile price action is sending mixed signals. It was a week that promised a lot of volatility but failed to provide any clarity as to the likely direction of gold prices moving forward. At the time of writing, gold is trading at $1,962 an ounce, just above the previous weeks close.

The US Federal Reserve’s decision on Wednesday saw the US dollar face significant selling pressure, which helped gold rebound on Thursday from a 3-month low. Market participants seem confused by the Federal Reserve’s pause as well as the economic outlook going forward. The Fed updated its peak rate forecast to 5.6% from 5.5% with Chair Powell effectively ruling out interest rate cuts in 2023 making the USD drop even more interesting.

Looking at gold prices historically the last time the Fed paused in June 2006, we saw a period of consolidation and sideways price action for the next 12 months. Are we on a similar tour this time? The similarities to 2006 do not end there either with the global economy on the verge of recession as we all know. However, there are several key differences which begs one question whether we will see a similar result in 2006 as risky assets rallied while gold held ahead of the impending crisis of 2008. One major indicator and difference lies in the yield curve which inverted by only 1 basis point in June 2006 compared to 90 basis points at the time of writing, the most in 40 years.

* Gray areas on the graph indicate recessions in the United States

Source: GuruFocus

So why haven’t we seen more tangible signs yet? The answer here likely lies in the increase in the money supply since the start of the Covid-19 pandemic and exacerbated by the Federal Reserve’s recent printing of an additional $400 billion in March to provide stability to the banking system. All of this is keeping stock markets going, but there could be pain ahead for risk assets and it could be something to watch in the coming weeks and months.

Next week and factors that may affect gold

The US economic calendar is rather quiet next week as most of the data is focused on the housing market. The biggest event risk from developed markets next week comes from the UK where both inflation and the Bank of England interest rate decision are likely to drive up volatility.

We have testimony from Fed Chair Jerome Powell while any further comments from Fed policy makers could also drive volatility and affect the US dollar in the coming week. Gold prices could receive a boost in demand and therefore prices after the interest rate cut by the People’s Bank of China (PBoC) in an effort to stimulate growth. Market participants are hoping to see an increase in demand from China with commodities and raw materials likely to benefit in the event of such a rally.

Here are the five “rated” high-risk events for the coming week in the economic calendar that could affect gold prices and lead to a spike in volatility:

For all the economic data and events that move the market, see DailyFX calendar

Technical outlook and final thoughts

The weekly chart for XAUUSD looks on its way to print a closing doji candle which would be appropriate given the mixed lower price action we have seen for most of the week. Nothing much has changed on the weekly chart as the daily time frame offers more to work with. However, the massive bearish wick on the week indicates that the buying pressure is still evident in the precious metal.

XAU/American dollar Weekly Chart – June 16, 2023

Source: TradingView

Pulling back to the daily time frame and once again gold failed to close below the 100-day moving average. The precious metal made three attempts this week pushing as low as $1925 before seeing a sharp rally, closing comfortably above the 100-day moving average and settling around the $1941 handle. Thursday’s bullish engulfing candle’s close hinted at more bullishness, but as has been the norm lately, the follow-through failed to materialize as Friday saw indecisive and volatile price action.

Looking ahead to the next week, the $1940-$1970 range continues to hold with a daily candle close on either side of the range likely facilitating a push in this direction. Until then, a range bound approach and a daily approach may be the best fit for the current market dynamics.

XAU / USD Daily chart – June 16, 2023

Source: TradingView

Written by: Zain Fouda, market writer for DailyFX.com

Connect with Zain and follow her on Twitter: @tweet