Gold prices, represented by XAU/USD, began the week facing a lot of downward pressure and experienced their biggest drop of the year on Monday. Although there was a bit of recovery later in the week, the overall result was still negative. What happens next week might be influenced by two main things: announcements from the US Federal Reserve about their monetary policies and the release of April’s labor market data from the US.
Gold Holds Firm Above $2,300 After Monday’s Steep Decline
Gold took a downward turn at the start of the week because tensions between Iran and Israel seemed to ease up after a quiet weekend with not much news about their conflict. Even though gold had been doing well and gaining value for a while because it’s considered a safe investment during uncertain times, it was time for a correction. So, on Monday, the price of gold fell by 2.7%. It kept going down and hit its lowest point in more than two weeks, around $2,290, early on Tuesday. But then, the US dollar started to lose value after some disappointing data about the US economy was released. This helped gold bounce back above $2,300, and by the end of the day, it didn’t change much from where it started.
The S&P Global Composite PMI, which measures business activity in the US, went down to 50.9 in April from 52.1 in March. This shows that the private sector’s growth slowed down. Also, the report showed that the prices businesses pay for things they need went up less, which made the US dollar lose some value. According to Chris Williamson, who is the Chief Business Economist at S&P Global Market Intelligence, lower demand for goods and fewer jobs available led to less pressure for prices to go up in April.
On Wednesday, the US dollar stayed strong against other currencies even after the US Census Bureau said that orders for durable goods went up by 2.6% in March, reaching $238.4 billion. This made it hard for gold to bounce back and gain momentum.
Then, on Thursday, the US Bureau of Economic Analysis reported that the US economy grew by 1.6% in the first quarter of the year. This was lower than the expected growth of 2.5% and weaker than the 3.4% growth in the last quarter of 2023. As a result, the US dollar started to lose value, which helped gold end the day with some gains. However, gold’s recovery was limited because the report also showed that prices went up more than expected, which could slow down economic growth.
Finally, on Friday, the US Bureau of Economic Analysis said that the core Personal Consumption Expenditures (PCE) Price Index, which measures inflation, went up by 2.8% in March compared to the previous year. This matched February’s increase and was higher than expected. With the US dollar staying strong, it was tough for gold to keep recovering as we headed into the weekend.
Gold Investors Shift Focus to Fed Decision and US Data
The Federal Reserve, also known as the Fed, will make important decisions about its monetary policies on Wednesday. It’s expected that the Fed will keep interest rates the same, around 5.25% to 5.5%. According to a tool called CME FedWatch, there’s about a 90% chance that the Fed will keep things as they are in June too. However, during the press conference after the meeting, Fed Chairman Jerome Powell might be asked if they’ll consider lowering interest rates in June. If Powell hints at that possibility, it could make US Treasury bond yields go down and boost the price of gold. Powell’s comments about inflation are also important. If he sounds worried about inflation, the US dollar might stay strong, which could limit gold’s rise. Also, if Powell doesn’t seem too worried about the weak GDP report, it might make it harder for gold to go up.
On Friday, the US Bureau of Labor Statistics will release a report about jobs in April. If there’s a big drop in the number of new jobs, especially below 150,000, it could make the US dollar lose value right away. Even if this report doesn’t change expectations about the Fed’s decision in June, it could still make the US dollar weaker if investors think the Fed might change policies in September instead. On the other hand, if the number of new jobs is higher than expected, especially if wages are going up fast too, it could make people think the Fed won’t change policies in September, which might make the price of gold drop before the weekend.
Gold Technical Analysis: Current Outlook
The Relative Strength Index (RSI) on the daily chart went up to 60 after dropping to around 50 earlier in the week. This suggests that the recent decrease in gold price was more of a temporary pullback rather than the start of a big change in direction. Also, gold bounced back above the 20-day Simple Moving Average (SMA) after falling below it on Wednesday, which shows that sellers weren’t very confident.
Looking ahead, there’s a resistance level at $2,360, then at $2,400, which was the highest point recently, and finally at $2,430, which was the all-time high set on April 12. On the other hand, there’s strong support around $2,300, then at $2,280, and finally at $2,240.
