Trade Of The Week: Bears Set To Tighten Grip On Gold?

• Potential volatile trading week for gold
• Precious metal shed roughly 2.5% in Q2
• Scales of power seem to be swinging in favour of bears
• Watch out for Fed minutes and US jobs report
• How prices react around $1900 could set tone

This could be a week to remember for gold prices thanks to technical and fundamental forces.

For the most part of Q2, it felt like a choppy affair for the precious metal with prices trading within multiple ranges. However, the overall trend was bearish with gold shedding roughly 2.5% for the quarter.

As the second half of 2023 kicks off, the scales of power seem to be swinging in favour of gold bears. Indeed, appetite towards the zero-yielding metal has been hit by a stabilizing dollar, Fed hike expectations, and a return of risk appetite. On the technical front, bears remain in the driving seat with prices trading uncomfortably close to the $1900 support level.

A major breakout could be on the horizon and here are 3 reasons why:

1. FOMC meeting minutes

All eyes will be on the minutes of the June 13-14 FOMC meeting on Wednesday.  

One of the biggest takeaways from the June meeting was the hawkish dot plot which signalled two more rate hikes in 2023. Since then, there have been conflicting views from Fed officials over how the central bank might move forward. On top of this, key data from the United States remains encouraging, pointing to economic resilience and supporting expectations around the Fed keeping rates higher for longer. Investors will be paying very close attention to the minutes for fresh clarity and details on the split between hawkish and dovish policymakers.

• Gold prices are likely to move higher if the June FOMC meeting minutes strike a more dovish tone, with cautious policymakers expressing concern over high-interest rates negatively impacting the US economy.
• Gold prices may sink lower if the June FOMC meeting minutes strike a more hawkish tone, with policymakers determined to raise interest rates to tame still-stubborn inflation.

2. US Jobs report

The US nonfarm payrolls report on Friday could rock gold prices, especially if it defies market expectations as we have seen in recent months.

Markets expect the US economy to have added 225,000 jobs in June, while the unemployment rate is seen ticking lower to 3.6% compared to the 3.7% seen in the previous month. Given how markets remain sensitive to anything relating to the US economy and rate hike expectations, this jobs report could trigger volatility across the board.

• Gold prices may appreciate on a weaker US dollar if the June NFP report prints below the 225k market forecast, complemented by a higher unemployment rate. This combo may fuel speculation around the Fed pausing rate hikes down the road, offering breathing room for zero-yielding gold.
• Gold prices may depreciate on a stronger US dollar if the June NFP reports exceeds markets expectations with the unemployment rate moving lower. This scenario may strengthen the argument around the Fed raising interest rates 2 more times this year. 

3. Technical forces favour bears 

Despite trading within multiple ranges, gold continues to respect a bearish channel on the daily charts. 

Prices are trading below the 50 and 100-day SMA while the MACD trades to the downside. Bears may step into higher gears this week if prices sink below the $1900 level. This could open a path towards $1893 and $1858 – where the 200-day SMA resides.

Should prices push back above $1932, gold bulls could test $1959, $1985, and $2000, respectively.

At the time of writing, Bloomberg’s FX model forecasts a 73.5% probability that gold trades between $1897.33 - $1949.36 through the first week of July.

Gold Federal Reserve NFP SMA MACD Rates Risk