Gold Outlook: Can the sideways motion be breached?

Gold returned into its sideways and muted price action in the most recent sessions, covering up the very important economic updates that took place mostly during the past week. In this report we will identify the developments that uplifted volatility in the Gold market, as we attempt to understand what drives Gold’s price moving forward. Many times, in the past Gold’s price activity has left clues as to what motivates traders and our aim is to bring those clues into light. In addition, we plan to support traders with a technical analysis, that could prove useful in numerous trading scenarios.

On a brief note, the FOMC meeting on the 15th of June, proved to be an interesting event for Gold traders, as the yellow metal was on the move prior and after the release. Gold was on the rise upon announcement of the Fed’s 75 basis points rate hike which lifted the federal funds rate between 1‑1/2 to 1-3/4 percent.  The Fed also hinted at further rate hikes looking forward, while it also reiterated it plans to reduce its Balance Sheet. A small note on worries over Chinese lockdowns was also inserted, as they could potentially increase supply chain disruptions.

During the following daily session, on the 16th of June Gold was also on the move performing its second consecutive session advancing. Notable US economic data released on the day including the Initial Jobless claims, the Philly Fed Business Index and the Housing Starts Number pointed to some weakening of the noted sectors. In this case, Gold advanced as the news may have temporarily increased economic risk attracting further buying interest. We must also note, the news weakened the USD as negative economic data tends to lead investors into shorting the USD. Thus, in this case we could say the USD’s negative correlation to Gold was in play in the past week.

The major concern for the global economy at the moment are the inflation rates. Even though we are seeing a massive turn of monetary policy towards higher interest rates by some of the biggest central banks of the world, inflation has not been controlled so far and has even surged in recent months. Some market participants doubt whether central banks can actually bring inflation down, as it is mostly derived from higher energy and food prices due to heightened demand and a labour shortage. On the contrary, employment and wages have improved that may be creating a mixed-up sentiment for the market. The contradicting forces, however, are worth examining closely as even daily headlines can move Gold’s price accordingly.

In the following days, a number of economic events unfold that could possibly create opportunities in the Gold market. On the 22nd and the 23rd of June we get back to back testimonies by Federal Reserve Chair Jerome Powell. On the 23rd we also get the weekly Initial Jobless claims figure and the Preliminary PMI data for June. On the 24th we get the Final UoM Sentiment for June and on the 28th we get the US Consumer Confidence reading for June.

Technical Analysis

The sideways motion seems to have extended in the most recent sessions and the price action may be nearing the (S1) 1830 support. If the price action breaks below the (S1), we could be seeing a drop towards the (S2) 1810 hurdle. In the scenario of an aggressive selling interest we could also see a more prolonged movement that could engage the (S3) 1785 hurdle, which was tested only a handful of times in 2022, making it the year’s low. For the time being the price action continues to move within a smaller range bound by the (R1) 1865 resistance and the (S1) 1830 support.

Yet, if the market turns bullish, we may see a decisive movement towards the (R2) 1895 resistance which has not been tested since the beginning of May. In addition, we also note the (R3) 1920 level that may be used in a more long-term buying strategy. The RSI indicator below our chart seems to be running across the 46 level possibly pointing to some selling interest in the short run. In our opinion, the metal continues to move in a sideways motion between the (R1) 1865 level and the (S2) 1810 barrier since the 9th of May. These levels could provide guidance for a building of a buying or selling trend accordingly.