Gold to return to highs of last week at 2,360

Summer trading in the gold market started near monthly lows. At the end of May, the sellers kept the initiative, but the drop in gold prices does not go beyond a normal correction. Lower prices only make gold more attractive to the bulls seeking to build up long positions. If the prices approach the support level of 2,300, traders will surely take the chance and start buying actively. Their first target will be last week's highs, near the 2,360 level.

Friday's decline in gold prices looks unreasonable. The US Personal Consumption Expenditures price index showed inflation for April at the level of analysts' consensus forecasts. At the same time, the data indicated a 0.1% drop in the US real household spending against expectations of a 0.1% increase. According to ING experts, such data suggest a sharp slowdown in US GDP growth, the first signs of which are already visible in the revised figures for the 1st quarter.

Meanwhile, gold market participants have increased demand for the metal to the highest level since the start of the COVID-19 pandemic. Last week's report from the Commodity Futures Trading Commission (CFTC) showed a 12% rise in money managers' long positions in gold to a 4-year high. As a result, the net long position in the yellow metal now totals 194,000 contracts.

Analysts of the Swiss financial group Julius Baer report persistently high demand for gold in China. According to them, Asian consumers are willing to pay higher prices for the yellow metal for both economic and geopolitical reasons. Julius Baer's forecasts for gold prices for 3 and 12 months ahead are $2,450 and $2,550 per ounce, respectively.

The current correction in gold provides a good opportunity for profitable purchases. In case of favorable news background, the drawdown will be quickly eliminated, and the prices will head towards the level of 2,360.

Consider the following trading strategy:

Buy gold at the current price. Take profit – 2,360. Stop loss – 2,300.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion