Gold prices are still unable to recover steadily after experiencing the worst week since February. So far, the price is protected from a more significant drop by the support level of 1,950, but if it fails to hold, the way to 1,920 will be open. Gold has not been traded for such prices since mid-March, but the pressure from the local downtrend increases the risk of breaking through the 1,950 level.
Gold buyers failed to develop a price rebound on Friday. Investors and traders are still focused on the negotiations of the U.S. officials about raising the country’s debt ceiling. House Speaker Kevin McCarthy’s comments on the low probability of a default contributed to reduced demand for gold as a safe-haven asset.
The dollar’s return to growth also contributed to the fall in precious metal prices. Traders are concerned that the Federal Reserve will continue to tighten monetary policy in the medium term. Yesterday Head of the Federal Reserve Bank of St. Louis James Bullard supported a hawkish stance of his colleagues. Despite the fact that this year he does not have the right to vote at the Fed meetings, his statements are still meaningful for market participants.
Bullard believes that the U.S. central bank should raise interest rates twice more this year. Previous forecasts were based on the fact that the U.S. economy suffers from serious problems and inflation declines rapidly. Instead, economic growth remains solid, but the price pressure is easing way too slowly. Thus, according to Bullard, additional monetary policy tightening is needed in the near term.
From the technical point of view, the further gold price dynamics depends on holding or breaking through the support level of 1,950. If bears are too strong, the price might accelerate its fall and head to the next important level of 1,920.
The following trading strategy may be offered:
Sell gold in case of breaking through the support level of 1,950 from above. Take profit – 1,920. Stop loss – 1,980.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
