The rise in the US dollar and the increase in US bond yields have been too much for the gold market. Thus, the yellow metal closed the week at the lowest level of the last 6.5 months. Additionally, further weakness could occur as the Fed maintains restrictive monetary policy for the foreseeable future.
Gold took a hit, but still holds up well
cryptokoin.comAs you follow from , the precious metal saw lower prices month, quarter and week. So there is a triple weakness for gold. December gold contracts fell nearly 4% on a weekly basis. The yellow metal is experiencing its worst week since June 2021. Gold sales took place as US 10-year bond yields rose to their highest level since October 2007. Meanwhile, the US dollar index rose above 106 points. Thus, DXY reached its highest level since the end of November. Phoenix Futures and Options President Kevin Grady comments on the developments as follows:
Gold holds up pretty well. But investors are now facing the reality that the Fed won’t be cutting interest rates anytime soon. High rates are here to stay; so the shiny metal took a hit.
Lower levels are on the table for the yellow metal
Gold prices suffered significant losses last week. However, some analysts predict that prices will drop further. Accordingly, they point to yearly lows just above $1,800 as the next major target. Lukman Otunuga, head of market analysis at FXTM, points out the following levels:
The bears are clearly in a strong position with the path of least resistance pointing south. However, the Relative Strength Index (RSI) on the daily charts indicates that prices are oversold. This suggests a potential pullback down the road. Looking at the technical chart, a break below $1,857.5 could open a path towards $1,830 and $1,810 respectively. If prices rise above $1,857.5, this could trigger a rise towards $1,885.
“Death Cross” has occurred, it is realistic for the gold price to drop further
According to Alex Kuptsikevich, senior market analyst at FxPro, gold created a bearish technical signal when the 50-day moving average crossed below the 200-day moving average. Therefore, the analyst says he is also watching the $1,800 support for the shiny metal. He also states that this formation is a “death cross”. Kuptsikevich gives the following explanation for his predictions:
While Wednesday’s move in gold was impressive, history suggests this is unlikely to be the last leg of the decline. The situation of the previous ‘death cross’, which occurred in July 2022, is very similar to the current one. At that time, the price dropped by 7%. Previously, in February 2021, sales had stalled after a decline of just 9%. In August of the same year, it fell by almost 7%. It is worth noting that the $1,800 region may only become the place where some bearish positions are fixed. It will be necessary to monitor financial market sentiment very closely. As stock indexes continue to fall and long-term yields rise, it is quite realistic for prices to fall further.
May form a golden base
Jeffrey Christian, managing director at CPM roup, notes that gold’s current selloff makes sense not only because bond yields are rising, but also because the long end of the yield curve is rising faster than the short end, narrowing the inverted gap. Christian says this rise in the 10-year bond highlights the improvement in market sentiment regarding the U.S. economy. However, he adds that although recession fears have eased, they have not disappeared. Christian notes that his company’s base scenario is that the US economy will weaken next year until 2025. Based on this, he comments as follows:
Overall, the economy is doing really well, so investors don’t see any reason to hold gold right now. But we still expect to see a recession next year. There are still many risks hanging over the economy that will have to come home to roost. We expect gold to form a new base at current prices.
Gold prices should have been closer to $1,700!
Christopher Vecchio, head of futures and forex at Tastylive.com, says he thinks the precious metal has established a higher base than last year, despite last week’s sell-off. “The movement we are seeing in bond yields and the rally in the US dollar suggests that gold prices should be closer to $1,700,” Vecchio says.
Additionally, Vecchio adds that investors should not be surprised if gold prices drop to $1,800. However, he also notes that with the Fed close to ending the cycle and the economy starting to slow down, any weakness in gold should be viewed as a long-term buying opportunity.
Next week’s data and events agenda
Lukman Otunuga states that the gold market is definitely taking a step back. He adds that investors should be prepared for some volatility next week. Because important employment data for August will arrive within the week. Aside from key economic data, investors will face a government shutdown as last-minute efforts to fund the government fail.
- Monday: ISM Manufacturing PMI, Fed Chairman Powell will attend the roundtable meeting.
- Tuesday: JOLTS Job Postings.
- Wednesday: ADP employment report, ISM Services PMI.
- Thursday: Weekly unemployment claims.
- Friday: Non-Farm Employment Report.
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