Gold prices could rise as US recession fears dampen Fed interest rate outlook

WEEKLY GOLD PRICE OUTLOOK: SLIGHTLY BULLISH

  • gold price could continue to rally if real yields stop rising
  • Weakening economic activity in the United States could translate into a more gloomy outlook for interest rates, weighing on the US dollar while supporting precious metals
  • Key data to watch in the next days: ISM manufacturing, NFP and ISM services
  • This article examines the key technical levels for XAU/USD at to watch next week

Most read: Gold and Silver Price Predictions XAU/USD, XAG/USD may rise as retail traders sell

Gold prices (XAU/USD) rebounded slightly in the second half of this month, but are still down more than 10% from the March high. Over the last few weeksthe geopolitical bounty embedded in the metal following the invasion of Ukraine began to relax, with traders becoming more and more less sensitive to wartime headlines. Another bearish catalystin the grand scheme of things, was the movement of real yields. For example, the 10-year TIPS has climb from -0.5% in early April to a multi-year high near 0.30% May 11before stabilizing around 0.ten% heading towards this month is near.

U.S. 10-YEAR ACTUAL RETURN (TIPS)

Source: CNBC

Although a further rise in real yields is weakening gold, it is possible that they have leveled off for the moment because nominal rates continue to fall due to weakening economic activity in the United States. Recent data has shown the world’s largest economy cooling rapidly, raising fears of a near-term hard landing. This situation has led traders to expect a less aggressive tightening cycle over the forecast horizon, leading to lower Treasury rates lately.

Looking ahead to next week, shortened by the Memorial Day holiday on Monday, the U.S. calendar is full of high-impact events that could trigger high price volatility, including ISM manufacturing, nonfarm payrolls (PNF)and ISM services, all forApril. The three reports should show some slow-down compared to March figures, but what to watch is the extent of the slowdown. If the results surprise on the downsidecompared to consensus forecasts, recession fears may continue to rise, translating these concerns into a cooler outlook for interest rates and, perhaps, a weaker US dollar. This scenario could benefit gold in June.

In terms of technical analysis, gold is stuck between support at $1,840 and resistance at $1,870. A decisive move away from these levels is needed for near-term guidance, but if prices break out higher, buyers might become emboldened to launch an attack on $1,895, the 38.2% Fibonacci retracement from the decline in March/May. On the other hand, if XAU/USD resolves lower and breaks above the $1,840 zone, where the 200-day simple moving average currently stands, the selling pressure could pick up, paving the way for a down towards $1,785.

GOLD PRICE TECHNICAL CHART

Gold prices could rise as US recession fears dampen Fed interest rate outlook

Gold Price Chart Prepared Using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX

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