XAUUSD, Daily
XAUUSD, has scored 3 historic peaks with nearly the same height, the last recorded on May 4, 2023 at 2079.28. XAUUSD on Friday moved lower and closed with a loss of -0.21% in 2011.17. The Dollar Index rally on Friday and higher global bond yields were negative for gold prices. Economic worries that could lead to reduced demand for the industrial metal also weighed on silver prices, after May’s US University of Michigan consumer sentiment index fell to a 6-month low.
Gold’s recent rally was fueled by forecasts of slowing inflation in 2023 and less hawkish Fed rhetoric. As a result, despite subsequent interest rate hikes, 10-year Treasury yields have retreated and the Dollar has depreciated, both of which are tailwinds for gold. Additional support also came from the banking sector turmoil and US debt prepaid maturing, so investors tend to hold on to hedging assets.
The US government has warned that its cash reserves are running low and may face default or severe spending cuts by June 1, 2023. This situation is likely to increase demand for gold as a hedge against economic uncertainties. Another reason is that further declines in yields and the additional Dollar depreciation that would result from reduced inflation are likely to give gold more strength. US annual inflation rate fell to 4.9% in April, compared to 6.4%in January. If inflation continues to fall in line with consensus expectations, this means a pause in interest rates is imminent and this could lend some support to gold, although this appears to counteract gold’s initial role as a hedge in times of high inflation. However, the factors that influence the price of gold are increasingly complex, due to sentiment.
Meanwhile, according to ABN-AMRO gold gains will be limited this year and more gains next year. The main reason is that interest rate markets are anticipating a Fed rate cut in Q3, so that should be reflected in gold prices as well as the recovery for the Dollar in the coming months. The price of multiple Fed rate cuts and a modest dollar recovery will likely result in lower gold prices, but not change the trend. Meanwhile, for 2024 they are more optimistic about the prospects for gold prices, because monetary policy easing by the Global Central Bank will be positive for gold prices in 2024.
Technical Outlook
XAUUSD, D1 – The gold price rally from the second rising wave (1804.50) is starting to lose momentum, with the presence of smaller body size candles and long upper wicks in the last 8 weeks. The weekly inside bar seen as indecision was present last week, above the 2000.00 psychological level. Bias at the beginning of the week, possibly still relatively stable, but volatility may occur amid low liquidity at the beginning of the week.
XAUUSD is currently showing a slight negative bias in the ascending tunnel, having formed a lower high at 2048.09 last week. Further drop below 2000.00 level could test 1978.37 support (52 day EMA) first. For the time being the price is still stuck at the 26 day EMA. As long as the price is trading above the 2000 level consolidation is likely to still prevail and the upside move is likely to be stalled as well at the recent highs. The RSI technical indicator is flat at 52 and has not validated any real price weakness, although a bearish divergence has been spotted between it and the MACD. A strong move to the downside to break the support at 1978.37 is needed, to confirm the start of the corrective wave, otherwise the consolidation will last longer. The movement below the support 1978.37 put the level 50.0%FR (from drawdown 1804.56-2079.28) as an ideal level close to the support 1934.17.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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