Gold Aims For New Records, Not Without Risks
Alex Boltyan | May 05, 2023 06:30AM ET
After surging and reaching its peak on Thursday's opening, with prices climbing towards the record high area of $2,075, gold prices started to correct lower. Given the levels at which gold is trading and the current market developments, volatility will likely remain elevated.
As of writing, the spot price XAU/USD is trading at $2,037, down 0.65% for the day but up by more than $50 during the week. If it closes around these levels for the week, it would be the highest ever for a week. Concerns about the economy, particularly in the US, have increased bets in the bond market that the Federal Reserve may start cutting interest rates as soon as July. On Wednesday, the central bank hiked by 25 basis points to 5.00/5.25%, the highest level since 2007, and signaled a potential pause.
Despite the rate hike, the US dollar did not benefit as renewed banking concerns emerged and US yields tumbled. Although the bond market has stabilized for now, another rally could be the key to fresh record highs in gold. However, big moves in one direction in gold will likely be followed by a sharp correction.
The US official employment report on Friday is expected to add more fuel to volatility. If the numbers surpass expectations significantly, like ADP on Wednesday, it could boost the US dollar and Treasury yields, making it difficult for gold to reclaim $2,050. On the other hand, a negative report could help prices move higher.
Gold faces a risk regarding how much the interest rate market has already priced in rate cuts from the Federal Reserve starting in July. If there is a significant change in expectations, it could trigger a correction in gold prices.
From a technical perspective, XAU/USD maintains a bullish outlook according to indicators on the daily chart, which are positive but not yet at extreme levels. The price is well above its main moving averages. Despite pulling back from the record-high area, it remains above $2,000. Above $2,055, gold could recover its shine and head towards record highs again. A break higher should open the doors to $2,100.
If the current bearish correction extends, the next strong support stands at $2,010/15, followed by $1,985. The critical area is $1,975, and a daily close below that would signal more losses ahead.
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