2023-05-17 10:59:00
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Gold fails to close above $2,000 due to the dollar and treasury bonds
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But a study of the trading charts shows that gold’s upward trend may be choppy rather than broken
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To regain momentum, spot gold should not close below $1,975 on a weekly basis.
Two weeks: This is the length of gold’s closing line above $2,000 an ounce before the bulls were pushed out of the market on Tuesday.
But a mini-crash in the yellow metal – that’s what some call it given the loss for the day was just under $30, or 1.5% – means the uptrend has not been broken, but is likely just broken.
Gold was hailed as a kind of hedge once morest economic and political troubles, holding below $2,000 for the first time since May 1, and following a May 5 rally to record highs.
Charts by SKCharting.com, with data powered by Investing.com
The decline came as more investors turned to the dollar and US Treasury bonds. The shift also came following flat economic data for the month of April indicated that the US economy, like gold, was not shattered – but only shaken by a number of bank failures, a weak first quarter in data and a stubborn rally.
Also, it settled above 102 and reached the 10-year yield following talks to raise the debt ceiling that the White House held with its Republican rivals in Congress. And of course, as we now know, the negotiations got nowhere.
Jerome Schneider, head of short-term portfolio management and finance at Pimco Securities Management, warned that yields on some US Treasurys might rise as high as 10% if the impasse over the debt ceiling extends through the securities’ maturity.
And that might only mean one thing: more bond chase funds potentially dumping gold.
While the breakthrough has yet to happen in Washington’s debt-ceiling standoff, there is also growing chatter regarding what might go into a bipartisan deal that would end the stalemate and avoid a market-shaking default.
Ed Moya, analyst at online trading platform OANDA, said:
Gold is lower as Wall Street awaits a meaningful update on debt ceiling talks. Wall Street is preparing for something bad to happen. But no one has any idea what that catalyst will be. It might be a debt ceiling impasse, persistent bank concerns, or a much weaker consumer as flat inflation becomes more apparent.”
Moya said the dollar continued to rise, meanwhile, on optimism that the US economy might still be bailed out of a severe recession. He added:
“Hopes of a ‘soft landing’ are still hanging on by a thread, and that is preventing some investors from going aggressively into safe havens. There are also plenty of risks still on the table for investors to attack. Risk aversion might occur on a push from banking concerns. regionalism, debt ceiling drama, consumer weakness, but a new catalyst is likely to come.
where do we go from here?
The price of VComex reached an all-time high of $2,085.40 on May 4. The benchmark gold futures contract settled on Tuesday in New York at $1,993 an ounce, down $29.70, or 1.5% on the day, following a session low of $1,989.25. In Asian trading on Wednesday, gold for the month of June hovered above $1992.
The , which reflects physical trading in bullion and is being followed closely by some traders, reached a record high of $2,073.29 on May 5, according to Investing.com data. Spot gold settled on Tuesday at $1,988.60, down $29.81, or 1.8% on the day. In the latest session, prices were hovering below $1,989 in Asian trade.
Some gold buyers said they were bailed out even earlier, following the yellow metal was unable to advance to $2,040 an ounce following consolidating from record highs.
As Philip Stripel, chief market strategist at Blue Line Futures and investor in gold, told Investing.com:
“I’ve never invested much in gold because it hasn’t really given back the breakout at $2036 which might make new highs. And I’ve chipped away at a lot of gold at that point. Also, the recent US data isn’t really that bad, suggesting that a soft drop is still possible. “.
“Whatever it is, some officials are saying they’re not really sure where we’re going with the economy, and we might have another rate hike in June. Certainly, more rate hikes are not good for gold.”
As Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com said, despite those of wavering convictions, a study of trading charts suggests that the upward trend that took gold to record highs two weeks ago, is far from over. He added:
“The current $100 decline from $2,081 to $1,985 and some additional correction does not confirm the break of the primary upward trend. It is a usual correction from a record high, triggered by the rebound of the dollar.”
It was also more of a “momentum distribution,” he said, with the $2018 level now acting as resistance for gold.
Dixit said that as long as prices maintain below the 23.6% Fibonacci level of $2018, a drop to the 38.2% Fibonacci level of $1,975 looks like a high possibility.
“I don’t see any major breach of the underlying uptrend as long as the metal stays above $1.975 on a weekly closing basis.”
He also said that if the dollar index does not fall below 102, it might rise above 102.70 and extend this momentum towards 103.40, complicating gold’s return to $2000.
Dixit has warned that a weekly close below $1,975 will extend the downside for gold to the horizontal support zone of $1,968 – $1955 and the 50% Fibonacci level at $1942.
He said $1,940 levels might be a turning point for gold, drawing bargain hunters back into the metal, adding that,
“This area might attract value buying and an upside from that might boost gold all the way down to $2,018.”
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