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July 2, 2018

FXGiants, Gold Market Outlook- caught in a downfall

Has gold hit rock bottom, or is there more to come?

Gold prices marked their lowest levels for more than the past six months reaching as low as $1,246. Specifically, gold prices have ended the quarter with a 6.8% drop if compared to opening price of $1,325 on the 1st of April.

The shiny metal headed for one of their weakest quarterly performance since year-end 2016, according to media as safe haven seeking investors turned to U.S. Treasuries instead of gold.

Gold is traditionally seen as a safe store of value, during times of geopolitical uncertainty.

But recent global trade war developments, have investors purchasing higher-yielding U.S. Treasuries and the dollar as safe haven investments instead of the bullion, traders said.

The expectation of two additional U.S. interest rate hikes in 2018, continue to weigh on all precious metals, but while silver prices were somewhat saved by industrial demand the same did not apply to gold.

It could be argued that gold prices are generally US Dollar sensitive and an increase in the greenbacks value could drop the bullions prices in the case that gold is USD denominated.

The recent release of the US inflation data, revealed a higher than expected reading and the argumentation for the case made by the Fed in its recent interest rate decision strengthened.

Hence, the possibility for an extra two rate hikes in 2018, was implicitly confirmed, strengthening also the US Dollar and weakening the demand for bullion.

Should the minutes of the Feds latest meeting (to be released on Thursday) show a strong support and decisiveness on behalf of the FOMC members, it could cement the will of the Fed for a more hawkish stance not only in 2018 but also for 2019 and could create even more volatility for gold’s prices, as such a scenario could be interpreted as supporting the USD in the months to come.

On another front, according to media, China’s central bank on Friday revised upwards the value of its end-May gold reserves to $77.323 billion, from $73.739 billion stated earlier this month.

An explanation was not provided by the central bank for the changed figure, leaving traders guessing as to the fundamental reasons behind the appreciation.

The total amount of gold held at end-May remained unchanged at 59.240 million fine troy ounces in the central bank’s revised statement on Friday.

Hence, the appreciation of the value in the bank’s gold reserves, could imply also an expectation for gold prices to rise in the future.

Given the above-mentioned scenarios, without taking into account any uncertain events which might have a positive effect in gold’s demand, hence increase the bullion’s prices, we could see gold remaining under pressure.

The strengthening USD could have a negative bearing of the price of gold. Should there be a weakening of the USD across its major counterparts, we could see gold on the rise again.

As an epilogue we would like to bring to your attention another two issues that could affect gold prices in the following two weeks.

The first relates to a US intelligence report that mentioned that North Korea may still be (secretly) promoting its nuclear program.

Should there be signs, of deterioration of the US-North Korea relationships, we could see uncertainty prevailing and gold prices could under certain circumstances, provide volatility.

Also it should be noted that the upcoming Trump-Putin meeting, could also have positive results or the international political scene, subduing uncertainty.

XAUUSD 4 hour chart

Gold continued to have a downward direction, despite signs of stabilization from Wednesday until Friday, testing the downward trend line incepted since June 19th.

The precious metal’s prices tested the 1247.50 (S1) support line repeatedly in the last two days of the past week and paid another visit, testing it again on Monday in the European session, implying a rather strong support level.

Technically, gold’s prices seem to be approaching a make or break point, where they either are going to break the 1247.50 (S1) support line or the prementioned downward trend-line.

The first scenario could imply a change of direction into a sideways motion while the second a continuance for gold price’s dive into lower levels.

As long as the commodity’s prices do not clearly break the downward trend line, we cannot remove our bearish bias for gold’s prices.

Technically, it should be noted that as the RSI indicator is approaching the reading of 30 in the 4 hour chart, the bearish scenario is strengthened, despite the implied overcrowded short position.

Should the bears continue to have the upper hand on gold, we could see its prices breaking the 1247.50 (S1) support line and aim if not break the 1236.68 (S2) support barrier.

On the other hand, should the bulls take over, we could see gold’s value, breaking the 1258.50 (R1) resistance line and aim for the 1270.00 (R2) resistance barrier.

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