GOLD PRICE Prediction:
- Gold prices start the week lower and are affected by rising U.S. yields.
- The Fed’s monetary policy decision will take center stage on Wednesday.
- This article looks at the key technical levels to watch for in gold.
Gold prices experienced a wild ride on Monday in a session characterized by low turnover as most European markets were closed for the Labor Day holiday in the region. Gold initially regained the psychological $2,000 level, but failed to hold its gains and quickly fell back below it after U.S. macro data beat estimates. (XAU/USD is 0.40% lower at $1,990 at press time).
The ISM manufacturing purchasing managers’ index came in better than expected in April, recovering slightly to 47.1 from 46.8 the previous month. As manufacturing contracted for the sixth straight month, employment and survey component prices paid rose to 50.2 and 53.2 from 46.9 and 49.2, respectively, supporting the U.S. dollar and Treasury yields along the curve.
Overview of US ECONOMIC DATA
Source: DailyFX economic calendar
of customers are net long.
of customers are mesh short.
The results of the ISM survey indicate that labor markets will remain tight in the near future, with wage pressures tending to rise. The rise in prices paid is worrying in that it could point to a resurgence of inflation in the near future.
Given the current situation, the Fed may be discouraged from stopping its tightening measures in the near future. This should not completely rule out further rate hikes beyond those priced in for May.
To better understand the Fed’s roadmap, traders should closely follow the decision and the outlook of policymakers this week as they conclude their May meeting. The central bank is expected to raise borrowing costs by a quarter point to between 5.00% and 5.25% as part of its efforts to restore price stability, which would bring the federal funds rate to a 17-year high.
With the 25 basis point hike already priced in, the focus should be on guidance. If the Fed does not signal that it will hit the brakes immediately, yields could rise further, which would hurt precious metals and prevent them from continuing their recent rally. If, on the other hand, the Fed indicates that it will hit the “pause” button, gold could rally quickly.
Looking at the technical analysis of XAU/USD, resistance appears to be near the $2,000 level. If the bulls manage to push prices decisively above this barrier, we could soon see a move towards the 2023 highs. With further strength, attention will turn to the all-time high at $2,080. On the upside, the first support is at $1,975. If this area is breached, the 50-day simple moving average could serve as the next bottom.