Firm Dollar Pushes Gold Below $1,800

  • The price of gold ended in the red for the fourth straight week.
  • Given that the factors supporting the dollar remain unchanged, gold is likely to remain in the red.
  • Technically, gold is about to break $1,800.

The weekly gold forecast remains bearish as aggressive Fed rate hikes and risk aversion weigh heavily on the price of gold.

After falling below $1,800 on Friday, the price of gold rose in the day on Monday but ended the week down more than 3%, posting the second largest one-week decline of the year. . XAU/USD closed below the $1,850 area for two consecutive days, which could be seen as a bearish move that could ward off short-term buyers.

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Safe-haven flows supported the dollar earlier in the week, causing the XAU/USD pair to fall. According to a report released this weekend by the International Monetary Fund (IMF), global economic growth could slow faster than expected, with inflation rising for longer than expected. Elsewhere, China’s exports rose 1.9% in April vs. 16.4% expected, beating market expectations.

Chinese authorities’ announcement on Tuesday that they would tighten coronavirus restrictions in Shanghai despite falling infection rates failed to change attitudes about risk. Meanwhile, several FOMC policymakers expressed support for two more 50 basis point (bp) rate hikes at the next two monetary policy meetings, which would help the dollar stay strong. Additionally, Cleveland Fed President Loretta Mester said she wouldn’t rule out a permanent rate hike of 75 basis points.

Mid-week, a slight improvement in risk sentiment dragged the greenback lower, opening the door for a XAU/USD rally. US President Joe Biden said on Tuesday he was considering removing tariffs imposed by President Trump on Chinese imports to reduce inflation. Additionally, as measured by the Consumer Price Index (CPI), the US Bureau of Labor Statistics reported that inflation fell to 8.3% year-on-year in April, from 8, 5% in March. Gold managed to end the day in positive territory as ten-year US Treasury yields fell below 3% after the data.

The rally in risk did not last and Thursday’s poor market sentiment sent the safe-haven dollar surging, sending gold heavy losses for the first time since February. As a result, the US dollar index hit 104.92, its highest level in nearly two decades, as FOMC Chairman Jerome Powell reiterated his expectation of two more 50 basis point rate hikes. in June and July.

Gold traded near a two-month low at $1,810 an ounce in relatively quiet trading on Friday. Although the yellow metal briefly dipped below $1,800 in the US session, it managed to pare some of its daily losses after a monthly report from the University of Michigan showed a drop in market sentiment. American consumers in early May.

Gold Data/Events Next Week

Retail sales in China, which are expected to fall 6% year-on-year in April, will be watched closely by investors from Monday morning. When data from China reminded investors that the lockdown was having a negative impact on economic activity, gold struggled to find demand. If sales fall more sharply than expected, we could see a similar reaction early in the week. Positive readings may limit gold losses, but are unlikely to trigger a rally in risk unless Chinese authorities ease restrictions in Shanghai and Beijing.

According to the US Census Bureau, US retail sales rose 0.6% month over month in April. Again, it would be unexpected to observe a significant change in risk attitudes at a single data point. Even if a bullish push helps US stocks gain momentum, it will also reinforce the Fed’s view that it can continue to raise interest rates aggressively without worrying about hurting the economy. Moreover, the health of consumer demand can be seen as a factor likely to fuel inflation.

The Philadelphia Federal Reserve will release its initial weekly jobless claims report later this week.

It seems unlikely that the dollar will weaken at this time. However, due to Chinese restrictions and the tightening of Fed forecasts, the ongoing Russian-Ukrainian conflict is expected to influence the value of the dollar next week. Therefore, it can be expected that gold recovery attempts will be limited in the near future.

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Gold Weekly Technical Analysis: Bears will break through $1,800

weekly gold forecast

The daily chart shows a strong bearish outlook for the week as the price broke below the 200-day SMA. The metal also briefly broke above $1,800, but managed to close above it. However, the next support in sight is $1,785 ahead of $1,750. Upside potential remains capped at $1,830-50.

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