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The Gold market’s gloomy outlook


1 June 2022

For the past several days, Gold’s price showed a rather muted reaction to the general news and shied away from major price swings. However, traders’ interest in the Gold market remains unending and the recent quiet price action may be even lifting suspicion as to the further direction the instrument may follow.  With this outlook we aim to present the key information affecting Gold prices in the past days but also matters that could be useful in the next days. As a closure, our technical analysis could provide knowledge on important trading levels.

With Gold’s price being denominated in USD, traders main focus tends to gravitate towards the economic developments in the US. It was very characteristic that Gold’s most significant daily movements in the past week, were performed between the 23rd and 24th and of May.  On the 23rd of May, Gold moved higher possibly after Atlanta Fed’s President Raphael Bostic referred to the heightening inflationary pressures bringing in focus a subject that may have not been clearly emphasized so far. Tons of information has been written about higher energy prices and supply chain disruptions that have led to low supply of goods.

However, President Bostic indicated that a shortage of workers to produce goods is equally impacting the overall supply chain. Despite the US economy keeping a rather low unemployment rate, millions of job openings are kept vacant and are unable to be filled at the moment.

In addition, again as per President Bostic, expanding the labor force will not be easy. In our opinion, the news seems to bring to light a hurdle that could take considerable time to be mended. Gold prices could have received some support after traders are constantly coming across evidence pointing to a prolonged return to lower inflation rates as available workers seem to be less than the open job vacancies.

XAUUSD Daily

Moreover, Gold finished positive on the 24th of May probably supported by fresh economic data indicating some weakness in important sectors. Both manufacturing and services PMI data dropped lower in May, with the second dropping lower than what the market expected. The news may have invited some buying interest for Gold prices, with traders turning to the shiny metal as a counter for economic uncertainty. We must note that the data may not be as worrying as some may believe given that the readings remain comfortably above 50 for now. However, we are seeing some stabilization for the time being and Gold’s upward movement can be seen as controlled. Overall, we see the market somewhat in a wait and see position. If more economic data from the US comes up questionable, we may see Gold prices strengthening.

In the following days, Gold traders have a range of important economic releases to watch out for. The star of the week comes on the 3rd of June with the US employment report for May. This event has traditionally caused strong volatility across the board and we may see Gold prices carrying out large swings. Moreover, on the 1st of June we get the ISM Manufacturing PMI and on the 3rd of June the ISM non-Manufacturing figures, both for May. On the second of June we get the weekly initial jobless claims which is also worth considering.

Technical Analysis

Since the 23rd of May, Gold has been moving in a sideways motion within the (R1) 1870 resistance and the (S1) 1845 support. Since the range is currently occupied by the price action, we must highlight the (R1) and (S1) as significant barriers for an upward or downward trend accordingly. However, at the moment to the RSI may be showing some selling interest with the indicator running across the 45 level. In the scenario of a breach above the (R1) 1870 line, we may see the (R2) 1890 barrier coming into play, while in an extreme bullish trend we may also view the price action engaging the (R3) 1920 hurdle. On the other hand, if the (S1) is breached, we may see a move to the (S2) 1820 being carried out while even lower the (S3) 1790 support coming into play. 

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