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Gold prices look for signs of life after weekly sell-off

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A short-term outlook
is defined by a thin economic calendar and a suddenly stronger USD

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Gold prices
had been staging a bit of a comeback during May, highlighted by a bullish trend
that had brought it back from April lows. June however has been a different
challenge altogether, culminating in a complete reversal of this trend lower.

Gold had
been buoyed by a very loosely defined monetary policy approach out of the
United States. Despite a convoluted message out of the Federal Reserve and
seemingly constant updates, a lack of any rate hikes for the foreseeable future
helped breathe life into gold’s immediate prospects.

This
support changed last week with the upcoming duality of rate hikes slated for
late 2023. While clearly a way out, investors became spooked over an
accelerated timetable surrounding tapering.

By
extension, inflationary concerns were put on hold with all eyes focusing on a
more hawkish Fed strategy, clearly sapping any momentum in gold. The result was
an abrupt decline to the tune of nearly -6.0 percent, crashing to May 2021 lows
near the 1760 handle.

Gold’s
macro outlook

There’s no
way to understate the importance of last week’s Fed meeting, which corroborated
a fairly evident trend that the US economy was on a path towards recovering from
the pandemic.

This
includes the eventual modulating of the inflation rate, which has over the past
six months caused spiking bond yields and convulsing markets in the process.

The Fed’s
outlook clearly is banking on reduced inflation rate, which is a huge blow for
gold bulls.

A stronger
US dollar is probably the biggest detriment to any sustained rise in gold. Any
immediate jump appears unlikely with strong resistance from investor
sentiment
blunting
any immediate reversal.

Short-term
price action

Gold at
the moment appears to be insulated against a further decline at its current
level by a strong support near $1760 (May low). At the time of writing, prices
have shown some signs of life Monday, recovering off its recent lows to edge
higher.

There are few
several relevant economic indicators this week that could help steer short-term
prices as June represents a rather quiet period on the economic calendar. The
US infrastructure bill is also more convoluted by the day, casting doubts for
investors as to whether it will eventually pass, or what size is currently
being floated.

Gold’s
immediate prices will be tied to any action in the US dollar or 10-year
treasury rates, which are at its lowest point since March.

Shackled
by a suddenly stronger US dollar, investors will be awaiting any catalyst that
could help gain any momentum
higher past a 200-day SMA at $1796.

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