In recent developments, gold prices have encountered a downward trend influenced by robust U.S. economic data preceding Powell’s Congressional testimony. The Chair of the Federal Reserve, Jerome Powell, is scheduled to present the Semiannual Monetary Policy Report to Congress on Wednesday and Thursday. This article aims to explore the key technical levels to monitor in the upcoming days concerning gold futures.
Date: June 21, 2023
Place: New Delhi, India
GOLD FUTURES TECHNICAL CHART
Gold Prices Drop on Tuesday:
Gold futures experienced a decline on Tuesday, plummeting approximately 1.3% to $1,945 during late morning trading. The primary factor contributing to this downward pressure was the strength of the U.S. dollar, driven by exceptionally strong data on May housing starts and building permits.
Implications of Strong U.S. Economy:
The resilient performance of the U.S. economy has the potential to persuade Wall Street that the Federal Reserve will resume raising borrowing costs in the latter half of 2023, aligning with their recent guidance. While policymakers maintained interest rates at their current levels last week, they hinted at an additional 50 basis points of tightening by the year’s end. However, traders initially appeared sceptical of these plans.
Cautious Outlook Ahead of Powell’s Testimony:
Traders approached the week with caution in anticipation of Jerome Powell’s Congressional hearings. Powell is set to appear before the U.S. House Financial Services Committee on Wednesday and the Senate Committee on Banking, Housing, and Urban Affairs on Thursday to present the central bank’s Semiannual Monetary Policy Report. This report holds significant importance as it can provide valuable insights into the future economic outlook.
Continuing Fight Against Inflation:
With little change observed since the June Federal Open Market Committee (FOMC) meeting, Powell is likely to emphasize that the battle against inflation is not over and that further tightening measures may be necessary to mitigate persistent price pressures. A hawkish speech by Powell could raise interest rate expectations and push yields higher, subsequently bolstering the U.S. dollar while adversely affecting precious metals. Given this context, gold’s current trajectory appears to favour a downward trend.
Technical Analysis of Gold Futures:
Gold’s technical outlook has become less favourable following the breach of a crucial trendline that had been guiding the market upward since late 2022. This breakdown has intensified the downward pressure, causing the metal to approach multi-month lows near $1,940, a significant support level that requires close monitoring in the near term.
Traders should closely observe how gold reacts around the $1,940 mark. Should XAU/USD establish a base around these levels and initiate a rebound, initial resistance can be identified between $1,970 and $1,980, followed by $2,000. Further strength in price could then lead to a focus on $2,050.
However, if sellers successfully breach the $1,940 support level, the underlying bias could become increasingly bearish. In such a scenario, a pullback towards $1,905, representing the 38.2% Fibonacci retracement level from November 2022 to May 2023, might occur. Subsequently, the next area of interest would be at $1,880.
The recent decline in gold prices can be attributed to robust U.S. economic data, coupled with the anticipation surrounding Jerome Powell’s Congressional testimony. The technical analysis indicates that gold’s path of least resistance may continue to be on the downside, with the breach of a key trendline adding to the bearish sentiment. Traders should pay close attention to the support level at $1,940, as it holds the potential to influence future price movements.
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