29.06.202309:49 Forex Analysis & Reviews: Gold to fall below $1,900?

Gold has recently shown a noticeable drop. Not long ago, it once again resumed an upward movement, reaching $2,000 and exceeding this level later. Shortly after, it rolled back from these levels. However, he had been trading at those levels for a long time. Analysts are worried that gold may slide below $1,900.

On Monday, gold retreated from a high of $1,930 thanks to positive macro stats from the United States, which confirmed the resilience of the economy. Later, the XAU/USD pair fell to $1,919, losing 0.18%.

According to the CME Group, in the middle of the week, gold futures decreased significantly. A drop of 2,300 contracts occurred for three consecutive sessions. At the same time, traders closed 15,700 contracts. The pullback was associated with weak demand. Economists suppose that a significant decline in gold to extremely low levels may occur in the near future although it consolidated at the support level of $1,900.

The weekly losses are only increasing. By the end of the week, its price reached new lows, coming close to $1,900. On June 29, the XAU/USD pair was moving in the range of $1,902-$1,903, almost touching the crucial level. If it falls below this level, it could trigger a steep decrease.

Gold has been declining for a long time due to a rally of US Treasury notes. Another reason was a strong US dollar whose rise was fostered by strong economic reports. Durable goods orders unexpectedly climbed by 1.7% in monthly terms in May. This report eased fears about a hard landing. It was extremely negative for gold. Gold is a safe-haven asset that advances during a slowdown in the global economy.

Currently, it is unable to resume growth due to upbeat US economic reports. According to the Conference Board (CB), in June, the Consumer Confidence Index rose to 109.7, exceeding the May figure of 10.5. "This might reflect consumers' belief that labor market conditions will remain favorable and that there will be further declines in inflation ahead," Dana Peterson, the chief economist at The Conference Board, noted.

New home sales also increased in May. The US Department of Commerce revealed that new home sales soared by 12.2% over the month, surpassing the April indicator of 3.5%. It gave a boost to the US currency, dragging gold down. Against this backdrop, the yield of US government bonds advanced, fueling a sell-off of gold.

On June 28, after a speech by Jerome Powell, gold dropped sharply. Earlier during a press conference, he admitted the likelihood of a recession. He also stressed that the Committee had not made a decision on the interest rate yet. However, he does not rule out further tightening of monetary policy.

Following his comments, the US currency rose, while gold retreated from previous highs. At the same time, the XAU/USD pair is unable to escape the downward range. The quotes slid from a high near $1,933. They could plunge to the low of mid-March 2023 located at $1,900

According to the technical indicators, a death cross which usually signals a bearish market was seen on the chart of the XAU/USD pair in early June. The 20-day exponential moving average (EMA) dropped below the 50-day EMA. If gold tumbles below $1,900, the next support level will be the 200-day EMA near $1,895. If the situation worsens, the price may collapse to the next low near $1,809. Earlier, CME Group analysts warned about such a scenario.

Since the start of this year and until May, gold prices have increased by 13%, having lost the bullish sentiment. In the current situation, Strategists at ABN Amro have downgraded their gold price forecast for 2024 to $2,000 from $2,200 before. They expect gold prices to amount to $2,000 in 2023 and 2024.

"The start of monetary policy easing by the Fed is generally positive for gold prices. But as the market has already anticipated this, it is already priced in the gold price. Therefore, we think that the upside in gold prices versus the USD is rather limited from current levels. Overall, the positioning in gold is not extreme. But from a risk-reward point of view being long at current levels may not be attractive," analysts at ABN Amro stressed.