Gold market's Friday trading session was marked by higher volatility. After renewing the two-month lows, the prices started to grow, but the attempt to get back above the level of 1950 was unsuccessful. Despite the fact that the price increased by 0.34% by the end of the session, there is still no significant rise in gold demand. The bulls might prove to be more active if the prices go down to $1920 or $1900 per ounce.
A significant amount of data on the U.S. economy was published on Friday, as well as the day before. These statistics failed to please gold buyers again: almost all indicators outperformed expectations. Figures on durable goods orders, personal consumption expenditures price and consumer sentiment indices remained moderately optimistic.
At the same time, market participants paid the most attention to the personal consumption expenditures price index (PCE). The Federal Reserve assesses the current dynamics of inflation and makes forecasts on the basis of this indicator. This time the figures hardly pleased the representatives of the U.S. central bank: in April both basic and general PCE indices had grown as compared with March. Inflation continues to persist at elevated levels.
As a result, market participants are once again forced to reassess the likelihood of an interest rate hike at the June 14 meeting of the U.S. regulator. After Friday's macro statistics, the chances of another +0.25% move rose to nearly 70%. Expectations of further monetary policy tightening are bringing back demand for U.S. bonds, while gold is fading into the background.
Some analysts have already assumed that gold prices may soon drop to $1900 an ounce. Given the updated interest rate forecasts, that scenario seems plausible, but for now bears face the challenge of getting past the 1920 level.
Consider the following trading strategy:
Sell gold below the $1950 level. Take profit – 1920. Stop loss – 1980.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.