Last week, gold collapsed by almost 4%. After such a resounding fall, it seemed to have no chance this seven-day period either. Contrary to the gloomy forecasts, prices started to rise.
The dollar was at its best last week and rose to a new 20-year high. This put a lot of pressure on the gold market.
Bullion prices slumped by 3.9% between 9 and 13 May. This is the strongest weekly decline for the asset since the summer of 2021.
In yesterday's trading, the precious metal also moved mostly in the red zone at first. This led to a drop below the psychologically important level of $1,800.
However, gold later managed to rise above this important level again and ended trading slightly higher.
Bullion gained 0.3%, or $5.80, to $1,814 on Monday.
Meanwhile, silver showed a more significant positive trend. Yesterday it was up 2.6% to $21,551. This was its best daily gain since April 12.
The precious metals were supported by a weaker dollar and lower US Treasury yields. Both indicators dropped on disappointing economic data.
On Monday, the New York Fed reported that its NY Empire State manufacturing activity index fell 36.2 to 11.6 points in May.This is well below the expectations of economists, who predicted a fall to 16.5.
This indicator reflects the economic health of the manufacturing sector in New York State. Its deterioration indicates serious business problems and is a wake-up call for the entire US economy.
The risk of recession has increased considerably as the Fed has begun to actively tighten its monetary policy. Any weak economic data could therefore force officials to act more cautiously.
The Fed's softness has a negative effect on US bond yields and the dollar, but is favourable for gold.
Notably, most FOMC members now consider a 50bp rate hike in June and July to be appropriate. However, there is a view that such measures will not be sufficient to combat record inflation.
It has long been obvious to all that the Fed is trapped. It has to balance between rising inflationary risks and fears of recession.Such a tense and ambiguous situation, combined with high volatility in the stock and cryptocurrency markets, should support demand for gold and drive up bullion prices. However, this does not seem to be happening.
Gold is now trading at a level that is about 11% below the high of $2,040.10 set in March.
The latest data from the Commodity Futures Trading Commission indicates that hedge funds have liquidated their bullish bets on gold for the fourth week in a row.
Despite bullion's return to growth on Monday, negative sentiment still prevails in the precious metals market. Gold now has a net length of 67,847 contracts, down by 8.6% from the previous week.
Many analysts believe it is only a matter of time before gold trades steadily below $1,800. This is likely to happen when inflationary pressures in the US peak and real yields jump again.
Experts predict an even bigger drop in gold prices by the end of the year. Prices for the asset are expected to risk falling below $1,700 an ounce as the dollar continues its extravagant rally.
