After a minor reversal on Friday. The gold price has resumed its fall, beginning off the week on the wrong foot. The US dollar (USD) is falling from two-month highs. As are US Treasury bond rates. As investors welcome the US debt agreement achieved on Sunday.
The United States avoids a disastrous default.
Risk sentiment remained positive at the start of the week, as seen by a 0.25% increase in the US. Markets are breathing a sigh of relief following a weekend agreement made by US President Joe Biden and House Speaker Kevin McCarthy to postpone the government’s $31.4 trillion debt cap until 2025, averting an economic disaster.
The US Dollar falls along with US Treasury bond rates as confidence for a US debt solution grows.
In the midst of this confidence, the US Dollar is reversing from two-month highs versus its main peers. Mirroring the lacklustre performance of US Treasury bond rates. Despite the increased weakening of the US dollar. Gold prices appear susceptible as markets hedge against the danger of a US recession. Despite the fact that the debt agreement still has to be approved by a tightly divided Congress.
The recent drop in gold prices might also be due to increased predictions that the US Federal Reserve would raise interest rates. The Federal Reserve (Fed) will raise interest rates by 25 basis points (bps) in June. Markets are already pricing in a 62% chance of a 25-basis point rate rise next month, up from roughly 12% a week ago. Strong US economic statistics, along with the lifting of the US debt ceiling, may give the Fed some freedom to continue its tightening cycle one final time in June.
Moreover the headline PCE grew 0.4% month on month on Friday, raising the annual rate to 4.4% from 4.2% earlier. The Core PCE, the Federal Reserve’s preferred inflation index, rose 0.4% monthly and 4.7% year on year. Meanwhile, the United States GDP rose at an annual pace of 1.3% in the first quarter of 2023, up from 1.2% the previous quarter. 1.1% in the first reading, above economists’ expectations of 1.1%.
As most major European and US markets are closed on Monday. Wider market mood will be the primary driver in the next day. Investors will look to the central banks’ forecasts. Ahead of the Congressional vote on Wednesday. And the United States Nonfarm Payrolls report on Friday.
Technical analysis of the gold.
Gold price is challenging the bullish pledges at the rising 100-daily moving average (DMA) at $1,934, as shown on the daily chart, after defending that critical support on a weekly closing basis.
The 14-day Relative Strength Index (RSI) is heading lower below the midline, indicating that the gold price is vulnerable. The bearish inclination is strengthened by the 21 DMA is about to breach the 50 DMA from above, which will confirm a Bear Cross.
Furthermore on a sustained breach below the 100 DMA barrier, gold bears aim for the March 17 low of $1,918. The $1,900 round sum may come into play later on.
Alternatively, the psychological level of $1,950 is considered as immediate resistance, over which bulls will seek to retest Friday’s high of $1,957.
The $1,970 static barrier might make it difficult for gold purchasers to recoup.
