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Will Gold Continue Sharp Declines?

01 Jul,2024
Will Gold Continue Sharp Declines?

Spot gold fell at the beginning of the trading week, and it received limited support due to the increasing expectations for cutting U.S. interest rates, as traders are waiting for more assurances from the Federal Reserve (Fed) and the U.S. Economy this week. 

- The movements of the yellow metal prices continued within the narrow range of trading, during which most of June moved, and did not make progress with the decline in the USD.

- Replier gold decreased slightly to $2,325.74 an ounce, while gold futures, which expire in August, decreased by 0.2% to $2,336.05 an ounce. 

- The sentiment towards gold was cautious even with the high rates of traders' expectations that the interest rate in September can be cut, in light of the data of the Personal Consumption Expenditure (PCE) Index from last week. The CME Fedwatch tool has shown that traders calculate an opportunity of approximately 58% to reduce 25 basis points in September.

- The dollar index fell by more than 0.2% on Monday, continuing its losses from the previous session. 

- Fed Chair, Jerome Powell, speaks this week, and the minutes of the Federal Reserve meeting will be issued in June next Wednesday.

- Markets are also awaiting the issuance of Non-farm payroll (NFP) data for June on Friday. The data issued last week showed that inflation in May slowed to the lowest annual average in more than three years, raising the bets to reduce the interest rate by the Federal Reserve in September. 

- The U.S. Economic Analysis Office reported that the PCE's price expenses decreased to 2.6 % year in May from 2.7 % in April. The basic personal consumption expenses index, which excludes the prices of food and volatile energy, slowed from 2.8 % in April to 2.6 % in May, registering the minimum annual rate since March 2021.

- The dollar index has been declining at a sharp pace for almost two months in response to direct inflation data, recording its lowest level in several days on Monday at 105.40. This decline provides support for gold prices. 

- On Sunday, the first round of the French parliamentary elections was presented about whether the extremist party could form a government after the run-off next Sunday. Moreover, President Joe Biden's exciting debate with his Republican opponent Donald Trump adds to a state of political uncertainty amid geopolitical risks and support for the yellow metal. 

- Meanwhile, an official survey showed on Sunday that the activity of manufacturing in China decreased for the second month in a row in June, and the service activity decreased to its lowest level in five months. However, the latest data on Monday revealed that the Chinese Manufacturing PMI Caixin increased unexpectedly from 51.7 to 51.8 in June compared to 51.2 expected.

- At the same time, the recent hawkish comments by members of the Federal Open Market Committee are impressive of uncertainty about the course of reducing the interest rate by the Federal Reserve, which leads to a further rise in the US Treasury's revenues. On Friday, the Fed's chairman in Richmond (Thomas Parkin) said that he will deliberately move on monetary policy as goods and services prices still have a field to pay prices up. The head of the Federal Reserve in San Francisco (Marie Dali) said that declining inflation shows that monetary policy is effective, but it is too early to know the time to reduce interest rates.

- Meanwhile, The ISM Manufacturing PMI may provide some signals for traders along with the broader risk morale. 

On the other hand, the other precious metals headed on Monday. Platinum futures decreased by 0.5 % to $ 1004.60 an ounce, while silver futures decreased by 0.5 % to $ 29.405 an ounce.

Gold's Technical Analysis

Gold is still under short pressure as long as the price moves below $2,340 an ounce, which may continue as a strong resistance and a main pivot point. If gold succeeds in breaking out the resistance level of $2,340, then it may touch $2,365 and $2,384 marks. The momentum can extend more towards re-testing the ATH of gold prices at the $2,450 region touched in May.

The alternative scenario is if gold continues to move below the $2,340 level, it may decline and re-test the $2,305-$2,310 region, and it may extend the losses to $2,285 and $2,250 an ounce.

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