Gold price faces downward pressure
The gold price is facing downward pressure, hovering around $2,010, seeking new influences to reverse a three-week decline, especially after recording its first weekly decline in three weeks. This price behavior reflects market concerns due to worries about the US debt ceiling and uncertainties in the banking sector. However, a relatively uneventful calendar and mixed messages from Federal Reserve (Fed) and US government officials are spurring the XAU/USD bears ahead of this week’s key data/events.
Concerns about a potential US default in early June, unless the debt ceiling is adjusted, are weighing heavily on market sentiment and supporting the rise of the US dollar. Meanwhile, concerns about US banks, especially those in the middle class that reported significant declines in share prices and deposits last week, are mounting to the press.
Moreover, hawkish comments from Fed officials also put a burden on XAU/USD. Fed Governor Philip Jefferson and St. Louis Fed President James Bullard, for example, defended the US central bank’s current monetary policy, citing elevated inflation as a primary obstacle. Similarly, Fed Governor Michelle Bowman stated that “the policy rate will need to remain sufficiently restrictive for some time.”
Recently, President Joe Biden indicated that postponed talks would be withdrawn on Tuesday. This, together with US Treasury Secretary Wally Adeyemo’s comments describing the debt ceiling negotiations with the White House as constructive, challenges market pessimism and US dollar bulls. As a result, while the gold price remains subdued, bearish investors have been taking a breather lately.
Despite weaker US inflation indicators and disappointing data on other fronts, XAU/USD buyers remain unimpressed. For example, the preliminary results of the University of Michigan’s Consumer Confidence Index for May fell below market expectations, dropping to 57.7 from the previous 63.5. Interestingly, one-year inflation expectations declined slightly, while the five-year figure rose to its highest level since 2011.
Looking ahead, Tuesday’s discussions on the US debt ceiling will be crucial for gold traders as they seek immediate direction. After that, US retail sales and a speech by Fed Chair Jerome Powell will be closely monitored.
If US policymakers fail to extend the debt ceiling, gold prices could face further downward pressure. Moreover, positive US data and hawkish comments from Powell could further strengthen the XAU/USD bears.
On the daily chart, the gold price illustrates a bearish triangle formation that currently ranges between $2,050 and $1,990. The bearish hints from the Moving Average Convergence and Divergence (MACD) indicator, along with a stable Relative Strength Index (RSI) line at 14, also suggest further depreciation of XAU/USD.
However, a decisive break below the $1,990 support level is necessary for gold prices to reach around $1,875. If the price breaches $2,050, it would contradict the bearish triangle formation, possibly leading to a rapid rise in XAU/USD towards the previous yearly high of around $2,070 and then to the recent record high near $2,080.