Gold prices continued to fall sharply on Wednesday (14 May) as positive US-China trade talks results boosted risk sentiment. Importantly, the precious metal fell below the $3,200 mark for the first time since 11 April, with a bearish pattern forming on the technical front.
As of writing, spot gold prices were at $3,182 per ounce, down more than 2 per cent.
It’s also worth pointing out that gold has not benefited from a weaker dollar for the time being, for reasons that may be related to today’s spike in U.S. bond yields. U.S. 10-year Treasury yields climbed 5.5 basis points to 4.526% today, and real yields (TIPS) rose to 2.234% in tandem, further weakening gold’s appeal.
In terms of macroeconomic data, U.S. CPI rose 2.3% year-on-year in April, slightly below expectations and previous values; core CPI was flat at 2.8%. The market is concerned about the upcoming release of PPI and retail sales data to find clues to the path of inflation. A stronger-than-expected pickup in PPI or weaker retail sales could heighten uncertainty about the Fed’s policy path.
Recent statements by Fed officials reiterating their cautious stance have dampened market bets on aggressive rate cuts. Market pricing suggests that expectations for rate cuts during the year have shrunk from three to two, converging with the Fed’s forecast. The revision of interest rate logic continues to suppress the space for gold price rally.
Technical outlook: double-top pattern hints at or down to $3,000
After the recent pullback, gold daily chart has formed a ‘double top’ pattern, fell below the key support of $3202, the short-term target pointed to the 50-day average of $ 3150 and $ 3100 mark. If further weakens, price may be down to $3000 or even $2950. To the upside, the $3200 handle needs to be recovered, followed by a test of the $3250-3300 resistance area.
However, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said in a recent interview with Kitco News that he continues to be bullish on gold, in part because the U.S. dollar hasn’t benefited from recent positive trade developments, and the likelihood of higher inflation, slower economic growth, and a weaker dollar will favour Gold.
He noted that it is not yet possible to say whether the U.S. economy will fall into recession this year; however, discussions on this topic have remained intense in recent months. Despite renewed investor optimism, safe-haven demand for gold is not expected to disappear anytime soon.
