Recently, the yellow metal has gone through a series of ups and downs, and is now striving for stabilization. At certain moments, Gold came to a standstill being at a crossroads, when the market was hesitant about its further trajectory. Currently, gold has chosen a thorny path upwards, on which ti should be braced for many traps.
Having fallen to a two-month low, the precious metal managed to recover and this process is still going on. The inflow of investments in gold has been unfolding as market participants are seeking shelter in this precious metal. The reasons are current jitters about the debt ceiling in the US as well as high inflation. This prompted investors to flock to gold as a safe haven and a protective asset that safeguards capital.
For several weeks, gold has tried to gain a foothold above the psychologically important round level of $2,000 per troy ounce. However, these efforts were unsuccessful. However, in April 2023, the precious metal hit an impressive $2,048 but didn't climb any further. The rally was derailed by the gold bears, who repelled the attack of the bulls and pushed the gold price to $1,969.
Currently, the yellow metal is trading sideways, aiming to reach new peaks. Gold has been stuck at roughly the same level for two months and gradually adapts to a range-bound market confirmed at the beginning of summer. At the same time, many analysts expect a pullback of gold by the end of July or by mid-August. Oftentimes, in this period of the year, gold retreats to lows before it enters the stage of a new upward wave.
At the moment, the yellow metal is trying to gain a foothold in the uptrend, gathering strength for further growth. On the first day of summer, Thursday, June 1st, gold traded near $1,972, paving the way up. Gold halted its two-day growth and consolidated.
According to the technical chart, the exit of the precious metal beyond the recent peak near $1,965 may attract new sellers. The decline could be limited to the level of $1,980. This level may become the turning point of the gold price. Once it is surpassed, this will help gold rebound to $2,000. On the other hand, there is a high probability of a pullback of the precious metal to the low level of $1,943 (100-SMA), which is protected by the bears. A convincing break of this barrier, as well as a retreat to multi-month lows near $1,932, will give a new impetus for the bears and drag XAU/USD to the bottom of $1,900.
However, such a negative scenario is now unrealistic. Over the past two trading sessions, gold has grown steadily, adding 1.1%. On Thursday, June 1, the yellow metal remained stable after voting in the House of Representatives to raise the ceiling of the US national debt. The bill was approved by a majority vote in the US Congress. Later, the document will go to the Senate for consideration. Then, if approved by both houses of the US Congress, it will be signed into law by President Joe Biden.
At the moment, market participants and experts are evaluating the news on the ceiling of the US federal debt and its impact on the dynamics of the US dollar and gold. Analysts at Credit Agricole believe that the geopolitical background in the US will increase the attractiveness of the precious metal, despite the growing interest in the USD. The tense situation linked to the US presidential election in 2024 could become a catalyst for geopolitical risks in the United States. In such a situation, the flight of investors to Gold will intensify, the bank emphasizes.
At present, the steady rally of the precious metal is subdued by the appreciation of the US currency. The dollar's recent rise to a two-month high has been a headwind for gold. However, experts consider gold's downward retracement to be short-lived. The high likelihood of further interest rate hikes by the Federal Reserve is adding fuel to the fire. The implementation of such a scenario encourages the greenback's strength, analysts remind.
At the moment, markets are still pricing in a 25-basis-point increase in the Fed's refinancing rate at the next meeting in June. The driver of such expectations was the positive news regarding the ceiling of the US public debt. Most analysts (62%) expect the key rate to remain at the current level of 5%–5.25%, while the rest allow it to be raised by 25 basis points.
Currency strategists at Commerzbank believe that a rate hike of this size has been fully priced into market quotes. According to market participants, by the end of 2023, the US central bank will revise its rhetoric. "Against this backdrop, gold is showing relative strength, without losing its luster due to the fact that the dollar is at its highest level since mid-March," the bank notes.
A fly in the ointment was a slight decrease in open interest in gold futures among large investors. By the end of this week, this downtrend has continued, but experts consider it short-lived. On Wednesday, the last day of May, the yellow metal logged a minor increase. Such dynamics of Gold, along with waning open interest among investors, indicates a limited potential for its further growth. According to analysts, now the precious metal is aimed at consolidation. XAU/USD has formed the bottom near $1,930.
The yellow metal was strongly supported by risk aversion among global investors. This limited the maneuver of the bears, but the chances of the bulls for a confident recovery are still modest. Gold traders share the hope for the possible greenback's weakness at the end of 2023 and at the beginning of 2024. Experts at Credit Agricole expect a short-term decline in the USD after the Fed enters "a cycle of monetary easing in the face of a looming recession in the US and lower inflation." In such a situation, the attractiveness of gold will increase, experts point out.
Credit Agricole also predicts a rise in the price of gold to the peak at $2,050 by the first quarter of 2024. Later, by the end of the second quarter of next year, the precious metal will drop to $2,000 per ounce. This level remains the target for gold until the year end, analysts conclude.
