Gold price is stuck in a narrow range with the “buy from the bottom” logic that dominates the market. Investors are watching closely the 25 basis point rate hike by the Federal Reserve, which is expected next week. However, according to analysts, if markets interpret this message as a “hawkish pause”, gold’s rally could begin again.
I would love to see this level for the gold price!
The gold market rallied above $2,050 earlier in the month, hitting a 13-month high. Now, cryptocoin.comAs you follow, it ended April with 1.26% gains. “Gold will continue to be a buying opportunity on the dips until we sort out a few things about the economy,” says Walsh Trading co-director Sean Lusk.
Michael Boutros, senior technical strategist at Forex.com, says that gold’s rally failed on a significant level. He notes that this will mean that there will be a deeper regression. In this context, Boutros makes the following statement:
Gold reached $2,049, the highest day close of 2022. However, it then went into decline. $1,966 is the line in the sand, and we tested that out last week. If we break below this, a deeper drop to $1,912-1,919 is possible. I would love to see this level.
Boutros says the goal for May is to find that exhaustion level before the next leg of the gold price rally.
Fed meeting: ‘The devil is in the details’
According to the CME FedWatch Tool, markets are currently pricing in an 83% probability of a 25bps increase on Wednesday. Michael Boutros comments:
From the Fed’s perspective, the devil is in the details. 25 basis points is heavily priced in. Comments will be key. The most important thing to look at is whether the Fed will start talking about the banking system and issues like First Republic Bank (FRB) issues.
Boutros warns that the turmoil in the banking sector is not over yet. In line with that, he says, “The weighty emphasis will be on whether the Fed sees cracks or risk of contagion.”
“We are waiting for a stop in Şahince”
At the weekend, reports were circulating in the press that the US government was spearheading bailout talks for the FRB. Markets are still pricing in rate cuts later in the year. However, most analysts struggle to reconcile market expectations with the Fed’s commitment to continue fighting high inflation. Sean Lusk: “Inflation is not going away anytime soon. That’s why the Fed won’t cut rates,” he says.
What the Fed can do is sit side-by-side with what will be seen by the gold market as a much-needed pause in the rate hike cycle. Suki Copper, precious metals analyst at Standard Chartered, comments:
Gold positions are less than 50% of the peak. This indicates that the Fed’s current increase cycle has come to an end. Therefore, it points to the upside risk to the gold price. We expect a hawkish stop.
Many see the increase in May as the last of this tightening cycle. Boutros states that a rate hike in June is probably unlikely.
Fundamentals are bullish for gold price
Sean Lusk says that the gold industry is a safe place for many to take refuge in the uncertainty of the market. He explains his views on this matter as follows:
There is still a perfect upside storm for gold. Here are some headwinds for the economy housing and growth. The stock market will have a hard time getting back to where it used to be. Much more money will flow into gold sooner or later. Gold is a great asset to park money and find a safe haven within the market. Here drops will be bought.
Technically speaking, Lusk says the first major support for gold is $1,950-40 followed by $1,925. On the upside, Lusk’s targets are $2,060 followed by $2,100. This means an annual increase of 15%. “Above this, the $2,190 region (20%) is my ultra bullish target for the year,” Lusk says.
Weekly gold price technical analysis
Technical analyst Christopher Lewis illustrates the technical outlook for gold as follows. Gold markets rose slightly during the trading week to well above the $2,000 level. However, he later returned to show signs of hesitation. Ultimately, this market will continue to look important to the area just above where we have seen selling pressure many times in the past. However, it is also worth noting that we have created several shooting stars. So I think the gold market is starting to get a little happy. Ultimately, a pullback makes a certain amount of sense. Assuming the baseline remains the same, the $1,900 level below is a great opportunity to rally a bit.
Ultimately, Wednesday’s Federal Reserve meeting will likely be the biggest catalyst for where we go next. Therefore, we will have to pay close attention to how the market reacts not only to the rate hike, but also to the announcement and the press conference that followed. Ultimately, I think you can see this market as a market where you are looking for value. Because it’s clearly on the rise. On the other hand, if we climb above the top of the shooting star, then there is a possibility of a move towards the $2,100 level. This opens up the possibility of a greater “take and hold” type of situation. Either way, I have no intention of trying to short gold as it has been so strong over the last few months for a number of obvious reasons.
Data and event calendar for the coming week
An event to watch next week will be the US’s April employment report. Markets expect job growth from 236,000 in March to drop to 178,000. The unemployment rate is expected to rise to 3.6%. Analysts say debt ceiling uncertainty and geopolitical tensions are other factors that support gold in the long run.
- Monday: US ISM manufacturing PMI
- Tuesday: US factory orders, JOLTS job postings,
- Wednesday: Fed meeting, Jerome Powell press conference, US ISM services PMI, US ADP nonfarm payrolls
- Thursday: ECB meeting, US jobless claims,
- On Friday: US nonfarm payrolls
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