- Gold struggles for direction ahead of key US data releases as geopolitics take a backseat.
- People’s Bank of China (PBoC) pauses gold buying following 18-Month spree.
- Downside momentum appears to be building as buyers lack conviction.
Fundamental Overview
Gold has edged higher this week yet remains under pressure heading into the US inflation data release and the FOMC decision. The steep decline in Gold at the back end of last week has left market participants in a quandary over whether a deeper retracement back toward the $2000/oz mark may finally come to fruition.
Optimism about a further decline in gold prices comes from the belief that the US Federal Reserve will adopt a hawkish stance at today’s FOMC announcement. The CME FedWatch Tool indicates that markets see a 56.9% chance of a rate cut at the September FOMC meeting. However, November is currently the most likely month for a rate cut, with an 87.58% probability. This aligns with data from the Chicago Board of Trade (CBOT), which shows that the December 2024 fed funds futures contract predicts most traders expect 28 basis points of rate cuts by year-end.
Source: CME FedWatch Tool, June 12, 2024
At the end of May, news broke that the People’s Bank of China (PBOC), which had been on a gold buying spree for the past 18 months, reported no change in its gold holdings. The People’s Bank of China’s (PBoC) pause in gold purchases will likely encourage market participants anticipating further declines in the precious metal, even if this pause is temporary.
Geopolitical concerns which had kept Gold prices supported appear to have taken a backseat of late. News around a potential deal to end the conflict in Israel seems to have eased concerns but remains worth keeping an eye on. Any signs that a deal may fall through and a further escalation in Lebanon could increase the precious metals safe haven appeal once more and scupper hopes of further downside.
Risk Events: US Inflation and FOMC
Looking ahead to the rest of the day, US CPI data will likely stoke volatility with market consensus pointing to a 3.4% YoY print with the monthly figure expected to come in at 0.1% as opposed to the 0.3% recorded in April. A miss on the data front with a higher print than expected could push the US Dollar Index closer toward a key multi-month resistance level ahead of the FOMC decision and updated economic projections “dot plot”.
For all market-moving economic releases and events, see the MarketPulse Economic Calendar.
Any moves post the CPI release are likely to be short lived as market participants may be wary of committing to a direction ahead of the FOMC decision and economic projections.
For a Full Overview of the FOMC Meeting Catch the Market Insights Podcast- All Eyes on FOMC
Technical Outlook
Looking at Gold from a technical perspective, downside pressure remains in play. The week has started well enough but the failure of the precious metal to push back above the key resistance level around 2319-2320 handle is cause for concern. It is no doubt a reflection of the mood of market participants who are looking to the Federal Reserve to provide some clarity on the monetary path moving forward.
As you can see on the chart below, the precious metal has been printing higher highs and higher lows since bottoming out around 2287 on Friday last week. The weekly candle closed below the 2300 level for the first time since breaking above at the beginning of April.
Immediate resistance rests at 2319-2320 with a break higher bringing the 100 and 200-day MAs into focus which could halt any attempted move higher. The MAs rest just shy of the psychological 2350 handle and may be seen as a key area of confluence for market participants eyeing further potential upside. A break beyond the MAs will bring focus to the most recent highs (June 7) around the 2377 handle.
Gold (XAU/USD) Four-Hour Chart – June 12, 2024
Source: TradingView.Com (click to enlarge chart)
Immediate support rests at 2287 (Fridays lows) with a break lower opening up a retest of support around the 2270 handle. Any further decline in the precious metal and market participants may focus on the psychological 2250 handle as the next barrier of support.
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Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
