Gold Price Analysis: XAU/USD bears are moving in from a weekly 38.2% Fibo resistance

At $1,839.80, the gold price is down by some 0.85% on the day as the US dollar attempts to correct from the lowest levels since the last trading week of  April. Gold prices are headed for a second consecutive month of declines as rising US Treasury yields discourage investors from the non-yeilding asset, despite concerns over surging inflation.

The 10-year yield is currently trading near 2.82%, up from last week’s low near 2.70% but still well below the May 9 peak near 3.20%.  Elsewhere, the 2-year yield is trading near 2.54%, up from last week’s low near 2.44% but still well below the May 4 peak near 2.85%. US gold futures (GCv1) settled down 0.5% at $1,848.4 and the spot gold price is following in tow. 

Investors' nerves were shaken up by the US Federal Reserve Governor Christopher Waller who on Monday advocated for the central bank to raise interest rates at every meeting until inflation is curbed. Specifically, Waller said “I support tightening policy by another 50 bp for several meetings. In particular, I am not taking 50 bp hikes off the table until I see inflation coming down closer to our 2% target.”    

This has left markets with the expectation of further rate increases in the forthcoming months. Analysts at Brown Brothers Harriman explained that WIRP suggests 50 bp is fully priced in for June and July.  ''However, a third 50 bp that was fully priced in for September is now about 50% priced in vs. 35% last week.  After September, two more 25 bp hikes are fully priced in and a third is partially priced in that would take the Fed Funds ceiling to between 3.0-3.25%.''

 What’s really changed is that rates are seen peaking in mid-2023 before falling in H2 23 and beyond, the analysts added. ''This would only happen if the US were to fall into recession next year and while it is possible, it is not our base case.  This week’s data will be very important for near-term market expectations.''

The US Nonfarm Payrolls is critical at the last trading of this week, but before then, ahead of the jobs report, important survey data will be reported.  Chicago PMI was reported today and was expected at 55.1 vs. 56.4 in April but it arrived at 60.3.  May ISM manufacturing PMI will be reported tomorrow and is expected at 54.5 vs. 55.4 in April. 

In the immediate future, US President Joe Biden said he and Jerome Powell will discuss inflation in a White House meeting Tuesday, and pledged to give the Federal Reserve chair space to do his job.

• Biden and Powell to discuss inflation, US dollar on a knife's edge

The outcome of the meeting will be important for the gold price. While gold is viewed as a hedge against inflation, rising US interest rates increase the opportunity cost of holding non-yielding bullion and boost the dollar in which gold is priced.

''The world is chasing the same narrative: quantitative tightening is going to sap liquidity at a fast clip, while the Fed hikes into a slowing growth profile in a grand battle against inflation,'' analysts at TD Securities argued, ''and yet,'' they said, ''consensus positioning in gold remains to the long-side, keeping precious metals prices resilient.''

Gold technical analysis

The gold price is meeting resistance n the weekly chart at a key 38.2% Fibonacci retracement level as follows:

However, from a daily perspective, the price is forming an M-formation while on the way to completing the test of the neckline of the prior W-formation. 

Gold, daily chart

This makes for prospects of some meanwhile consolidation in the days ahead, with the price potentially trapped between the two opposing necklines acting as support and resistance.