Gold prices continue to weaken, analysts: once below 2300, or the sword points to the May low

Forex documentary community- On Thursday (June 13), spot gold closed down more than $20, and fell below the $2,300/ounce mark during the session. The strengthening of the US dollar is not conducive to the trend of gold prices. In addition, some analysts attributed the decline in gold prices to investors taking profits.

The ICE Dollar Index closed up nearly 0.5% at 105.23 on Thursday. The decline in U.S. Treasury yields, which are positive for gold, did not provide support to gold prices. The yield on the 10-year U.S. Treasury bond fell 7 basis points on Thursday to 4.242% from 4.310%.

Spot gold fell $20.87, or 0.9%, to $2303.86 an ounce on Thursday. Gold prices hit an intraday low of $2295.76 an ounce.

Christian Borjon Valencia, analyst at FXStreet, pointed out that despite the weakness in the US PPI, gold prices have plummeted due to the Federal Reserve's forecast of only one interest rate cut this year. In addition, the strength of the dollar has also hit gold prices.

The Federal Reserve kept interest rates steady on Wednesday despite the improvement in inflation, and expects only one rate cut in 2024 as economic growth and unemployment remain above what the Fed considers to be long-term sustainable levels. High interest rates increase the opportunity cost of holding gold and reduce its attractiveness to investors.

Markets are still assessing the future path of monetary policy at the Federal Reserve, which on Wednesday left interest rates on hold and signalled only one rate cut in 2024, compared with a forecast in March of three cuts this year. Investors are optimistic that the Fed has made "modest further progress" on its 2 per cent inflation target despite keeping rates on hold.

In a subsequent press conference, Fed Chairperson Jerome Powell reiterated that while inflation had fallen sharply from its highs, it was still too high, stressing that this year's inflation data had not yet given the Fed "more confidence" to approach its 2 per cent target and that the Fed was maintaining its tight monetary policy stance.

In economic data on Thursday, the US producer price index (PPI) unexpectedly fell by 0.2% month-on-month in May, the largest drop in seven months, providing further evidence that inflationary pressures are slowing. Compared with May last year, the US PPI rose 2.2% year-on-year in May. Economists had expected the US PPI to rise 0.1% month-on-month in May and 2.5% year-on-year.

Thursday's PPI data came after the U.S. Labor Department's May Consumer Price Index (CPI) released on Wednesday also showed a general cooling in inflation, encouraging gold to surge to 1% on the day, but spot gold prices reversed after hawkish comments from the Federal Reserve.

Separate data released Thursday showed that initial U.S. jobless claims 242,000 in the week ending June 8, with expectations 225,000 and 229,000.

Tai Wong, an independent metals trader in New York, said: "Even bullish data this week has not allowed gold to hold its gains, indicating widespread profit-taking."

Gold prices have come under pressure after the People's Bank of China halted an 18-month buying spree. The central bank's gold holdings held steady at 72.80 million ounces in May.

Mr. Wong added: "China's willingness to buy gold may return to a lower level, but it is not clear what level it will drop to, but the current Chinese purchase price has not exceeded $2,300 an ounce."

How to trade gold after a major decline?

FXStreet analyst Christian Borjon Valencia pointed out that with the head and shoulders pattern still in place, gold prices remain neutral to the downside, suggesting further declines in gold prices. The momentum in the Relative Strength Index (RSI) suggests sellers are in control, suggesting that once gold prices fall below $2,300 an ounce, lower prices are ahead.

Valencia said that the first support level for gold prices is currently $2,300 an ounce. Once it effectively falls below this level, the next target will be the May 3 low of $2,277 an ounce, and then the March 21 high of $2,222 an ounce.

Once the price of gold falls short of the above target, the price of gold will further decline, and sellers may target the head and shoulders pattern (around $2170-2160 per ounce).

(Daily chart of spot gold)

On the other hand, Valencia added that if gold prices break through the June 7 cycle high of $23,870 an ounce, that would pave the way for gold prices to test the $24,000/ounce level.