The gold price is fading the earlier rally above $1,950 as the US Dollar (USD) sees a fresh advance amid a risk-on market profile. The focus now shifts to the House of Representatives vote on the US debt accord reached by US President Joe Biden and House Minority Leader Kevin McCarthy last Sunday.
The US dollar is in demand when it resurfaces. China is concerned.
Risk aversion remained the underlying trend early Wednesday, as rising concerns about China’s economic recovery, mixed with nervousness about the US debt agreement vote, send investors fleeing to the US Dollar at the expense of gold. Safe-haven flows into US government bonds are pulling on US Treasury bond rates throughout the curve, perhaps limiting the downside.
China’s official Manufacturing Purchasing Managers’ Index (PMI) was 48.8 in May, down from 49.2 in April. The indicator fell to a five-month low, finishing below the 50-point threshold that separates growth from contraction. The negative revived fears about a weakening Chinese economy while implying that officials may implement immediate stimulus measures to boost growth. China’s economic troubles, as the world’s largest gold consumer, add to the metal’s weight.
Furthermore, investors will only put new wagers on the gold price before the critical Congressional decision on suspending the US debt ceiling in January 2025. “The House rules committee voted 7-6 late Tuesday to allow debate by the full chamber, with two committee Republicans opposing the measure.”
Their opposition highlighted the need of Democrats working with Republicans to pass the bill in the House, which Republicans control with a slim majority,” according to The Guardian.
Meanwhile, gold traders will be watching the United States JOLTS Job Openings data for April, especially after the Conference Board Consumer Confidence fell marginally to 102.3 in the reporting period, from 103.7 the previous month.
Many US Federal Reserve (Fed) policymakers will make it a busy American trading day as investors search for new clues on the Fed’s interest rate outlook in Friday’s US Nonfarm Payrolls report. Markets are presently putting in a 60% possibility of a June Fed rate rise of 25 basis points (bps).
Technical analysis of the gold
Gold is susceptible and a ‘sell on increase’ strategy as long as the 14-day Relative Strength Index (RSI) remains below 50.
The gold price is awaiting confirmation of a Bear Cross on a daily closing basis, since the 21 DMA has penetrated the 50 DMA from above.
The modestly bullish 100-daily moving average (DMA) around $1,938 protects the immediate downside.
The daily close below the 100 DMA support is key for the downturn to proceed towards the March 17 low of $1,918. Prior to that, the previous day’s low of $1,932 will provide some support to Gold bulls.
Gold buyers, on the other hand, must establish a firm footing above the $1,960 round figure in order to add legs to the recent rally. The $1,970 static resistance comes next. Gold purchasers may face difficulties if prices rise over the convergence of the 21 and 50 DMAs at $1,990.
