Central bank purchases and strong Asian demand are creating a long-term uptrend in gold prices. However, uncertainty about the Federal Reserve’s monetary policy leads to significant volatility in the short term.
Hawkish Fed put pressure on gold prices
cryptokoin.comAs you follow from , at the beginning of the week, markets priced in the expectation that the Fed would cut interest rates twice this year. With the impact of this, gold prices reached a record level, rising above $ 2,450. However, gold closed the week down more than $100. Therefore, the new breakout rally was short-lived. The Fed’s Meeting Minutes convey a hawkish tone as inflation pressures remain high. So, the central bank is reluctant to lower interest rates. The minutes also showed some committee members were willing to raise rates if inflation continued to rise. ActivTrades Senior Analyst Ricardo Evangelista makes the following assessment:
This announcement pushed back expectations for a rate cut, and November replaced September as the likely timing for the first cut. This shift caused Treasury yields to rise and the dollar to strengthen, penalizing the price of the non-yielding precious metal.
Gold investors should follow this data and technical levels!
FXTM Market Analysis Manager Lukman Otunuga says the sell-off in the US ahead of Memorial Day could put further downward pressure on the yellow metal in the near term. “Traders are pricing in only one Fed rate cut in 2024,” Otunuga said. So probably the scales of power are tipping in favor of the bears,” he says. The analyst adds that in the current environment, the gold market will be sensitive to next week’s inflation data. PCE, the Federal Reserve’s preferred inflation gauge, is due out Friday. The analyst makes the following statement:
Signs that price pressures are easing have the potential to boost gold prices by rekindling hopes of a Fed cut. If the PCE report comes in above market estimates, this could send gold prices lower, dealing another blow to Fed cut expectations. From a technical perspective, downside momentum could push prices towards the $2,300 support level and lower. A move above $2,385 may be needed for the bulls to get back into the game.
David Morrison: Short-term momentum is turning for gold!
Despite broad bullish sentiment in the market, some analysts note that short-term momentum is turning. In a note on Friday, Trade Nation Senior Market Analyst David Morrison highlights the following:
It certainly wouldn’t be too difficult to see gold retesting $2,300. This level and the area just below it acted as support earlier this month, and it looks like it won’t take much selling to push it back there. But as always, strong rallies can suddenly emerge, especially after significant pullbacks.
“There is a divergence between gold price dynamics!”
FxPro Senior Market Analyst Alex Kuptsikevich also sees signs of changing short-term momentum in the market. However, he adds that the precious metal can be purchased on declines. In this context, the analyst makes the following comment:
There is a divergence between the RSI and price dynamics on daily time frames; where a higher local price corresponds to a lower peak in the Relative Strength Index. This is seen as a decrease in purchasing power and usually precedes a major decline or reversal. However, the recent decline could be a short-term correction, effectively letting off steam and paving the way to the upside. Still, gold remains above its 50 and 200-day moving averages.
Official sector demand supports higher prices!
Looking at the technical chart of gold, analysts say investors and traders should watch the initial support between $2,300 and $2,285. WisdomTree Research Director Nitesh Shah expects official sector demand to support higher prices. Shah says central banks are not focusing on the gold price because they are trying to diversify their reserves. However, he states that they will still act opportunistically and make discounted purchases when they can. In this regard, the analyst shares the following assessment:
I suspect central banks will buy with every price decline we see. If they want a cheaper price, they know they should buy now because the price will go even higher.
Economic data to watch next week
While Friday’s inflation figures will be the main focus during the short trading week, economists will pay close attention to updated GDP figures and consumer confidence data.
- Tuesday: US Conference Board Consumer Confidence.
- Thursday: US Q1 GDP. Weekly unemployment claims. Pending home sales.
- Friday: US PCE and personal income and expenditures.
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