Trade Of The Week: Gold Waits For Another Directional Catalyst…

After the explosive price action last week, gold kicked off Monday on a calmer note.

A softer dollar attracted gold bulls into the vicinity. However, upside gains were capped by hawkish comments from Fed Governor Christopher Waller over the weekend who supported another 75-basis point rate increase at the Fed’s July meeting. This was based around economic data matching his expectations.

Before we take a deep dive into what to expect from gold in the week ahead, it is worth keeping in mind that prices remain trapped within a wide range. Major support can be found at $1800 with the first layer of resistance at $1880 and then $1900. Given how various forces are pulling and tugging at the precious metal, a fresh directional catalyst may be required to shift the balance of power in favour of bulls or bears.

Since the start of Q2, gold has shed roughly 5% but is up 0.5% year-to-date. As highlighted earlier, ongoing geopolitical risks, soaring inflation, global growth concerns, the dollar, Treasury yields, and Fed hike expectations have influenced gold prices. After securing a weekly close below $1900 back in April, could the precious metal be gearing for a breakout/down from its current range?

Could this be a big week for gold?

Gold placed investors on an emotional roller coaster ride last week thanks to a volatile dollar and swinging Treasury yields.

Despite the Federal Reserve raising interest rates by 75 basis points, the precious metal staged a rebound after the Fed reassured markets that such jumbo-sized hikes would be rare. Appetite towards gold was also stimulated by fears of a US recession amid tighter monetary policy. While the precious metal could edge higher in the short term amid a softer dollar, zero-yielding gold could struggle in a higher interest rate environment.

A fresh fundamental spark needs to be brought into the picture to trigger the next major move on gold.

Such a catalyst could come in the form of Fed Chair Jerome Powell’s testimonies before Congress this week. Markets will closely watch this event for more clues about incoming rate hikes and the outlook on the US economy. Should Powell strike a hawkish note and offer fresh insight into rates, this may compound gold’s pain – dragging prices lower. A cautious sounding Powell may provide the precious metal some breathing room to recover.

It is worth keeping in mind that Fed hike expectations remain elevated with traders pricing in around an 87% chance of a 75-basis point rate hike at the next meeting in July. This could complicate things for bulls down the road.

Gold ETFs Jump…

According to an automated report from Bloomberg, gold ETFs added 334,758 troy ounces to their holdings last Friday which was the biggest one-day increase since April 13.

Inflows from ETFs are generally seen as bullish for the underlying asset. Given how the dollar remains pressured by recession fears and uncertainty could accelerate the flight to safety, investors may be increasing their exposure to the precious metal. 

An ETF (Exchange Traded Funds) is an investment instrument that allows retail traders to gain exposure to an existing market or groups of markets. A gold ETF grants investors exposure to gold without having to own it physically.

Breakout on the horizon? Or the same old?

On the daily timeframe, gold prices are trading below the 50, 100, and 200 SMA while the MACD trades below zero. There seems to be minor support around $1830. A solid breakdown below this level could encourage a decline towards $1800 and $1764. A breakout above $1858 could trigger a move higher towards $1870 and $1900, respectively. Beyond $1900, the first checkpoint can be found at $1920.

Gold Federal Reserve Bond Yields Risk Dollar