Gold price is struggling to evaluate its modest bounce from $1,970 on Friday. Therefore, it is under some selling pressure on the first day of the new week. Analysts interpret the market and share their forecasts.
Modest strength of US dollar puts pressure on gold price
cryptocoin.comAs you follow, there is an expectation that the Federal Reserve will further tighten its policies. This helped some buying in the US Dollar on Monday. It was seen as an important factor that brought the gold price down for the second day in a row. In fact, markets now seem convinced that the Fed will continue to raise interest rates to curb high inflation in the US. It has also fully priced in a 25 bps increase at its May FOMC policy meeting. In addition, the future of Fed funds points to the possibility of a small rate hike in June.
Falcon Federal Reserve expectations support dollar
Bets are up on recent hawkish comments from several Fed officials and positive US macro data showing the world’s largest economy remains resilient. A flash version of S&P Global’s PMI survey showed on Friday that overall business activity in the US private sector expanded at a faster pace in April. Activities in the service sector grew for the third month in a row and at the fastest pace in a year. Also, the US manufacturing sector indicator moved into expansion territory for the first time since October 2022.
Weak risk tone provides some support for safe-haven gold
However, a softer tone around US Treasury bond yields is preventing USD bulls from placing aggressive bets and giving support to the gold price. In addition, a new decline in the stock markets also contributes to limit the downward movement of gold. Expectations of further policy tightening by the Fed are fueling concerns about economic woes from rising borrowing costs, which in turn reduces investors’ appetite for riskier assets and increases demand for traditional safe-haven assets, including gold.
On Monday, there was no economic data from the US to guide the market. So the dollar is at the mercy of US bond yields. Also, traders will take cues from broader risk sensitivity to seize short-term opportunities in gold. However, the aforementioned key floor and the lack of any meaningful buying suggest the path of least resistance for gold is down.
Technical view of gold price
Market analyst Haresh Menghani assesses the technical outlook for gold. From a technical standpoint, bearish traders can expect some selling below the $1,969 region before taking positions for an extension of the recent pullback from a one-year high. It is possible for gold to slide towards testing the next relevant support near $1,956-1,955 later. Thus, there are chances of an eventual drop to the monthly low around $1,950.
On the other hand, any recovery attempt is likely to attract new sellers close to the psychological $2,000 mark. Thus, it is likely to remain limited near the $2,010 barrier. Continuing strength beyond the latter could trigger a fresh short and push gold price beyond the $2,020 barrier towards the $2,040 horizontal zone on its way to a YTD top of $2,047-$2,049.
Geopolitical risks and recession fears support gold, but…
Market participants continue to focus on the Fed’s interest rate strategy to combat rising inflation. In this environment, gold prices remained in a narrow range on Monday. FXTM senior analyst Lukman Otunuga says gold prices are struggling to find direction as investors stay on the sidelines. In this context, Otunuga said, “Geopolitical risks and recession fears continue to support the gold bulls. In this environment, the expectation of further US rate hikes has limited upside gains,” he says.
Saxo Bank strategist Ole Hansen says the gold market will need an even bigger correction to trigger any mandatory long liquidation, which remains a relatively minor risk as long gold stays above the $1,955 to $1,960 support.
This means headwinds for the yellow metal
According to the CME FedWatch tool, markets indicate a 90% probability that the Fed will raise rates by 25 basis points. The Fed will hold its next policy meeting on May 2-3. Yeap Jun Rong, a market analyst at IG, comments:
After the pioneering PMI data released last Friday, there was a slight increase in US Treasury bond yields. This continues the downward pressure on gold prices. The Fed’s interest rate expectations are well fixed so far. However, greater flexibility in economic conditions in the coming weeks could boost speculation for another rate hike in June or push back against the timeline of rate cuts. That means headwinds for the unyielding yellow metal.
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