- Gold Prices recently slid below the $1900 level for the first time in nearly one month and are now testing support.
- A break below $1890 support would open the door to selling pressure towards the 200DMA at $1830.
- Ahead, gold traders will be watching US data including GDP and Core PCE results, as well as geopolitical risk.
At $1,897, Gold Price is down some 1.8% and has travelled between $1,891.56 the low and $1,934.54 the high. Risk sentiment has fallen at the state of the week. Government bond yields have subsequently slumped as concern has mounted that the COVID-19 related shutdowns in China will compound supply chain restrictions, undermining growth in the second-largest economy in the world with contagion risks for the rest of the world.
The US 10-year yield sank to a low of 2.760% intraday falling from a high of 2.895%. The US dollar, nevertheless, has rallied by some 0.6% from a low of 101.040 and to 101.856 as per the DXY index. This has left the price of gold on the back foot despite the risk-off mood.
Traders are citing concerns about widening lockdowns in China as the major driver of the recent downturn energy and industrial metal prices, and this is resulting in a pairing back in inflation expectations, weighing on precious metals. Meanwhile, risk-off flows and weakness in the yuan are boosting the buck, raising the cost of USD-denominated gold for foreign buyers.
Some gold bulls might be tempted to reload longs at current levels, however. Firstly, support in the $1890s has held up well in recent weeks and, with US yields pulling back off highs a touch amid increased safe-haven demand, this support may well hold. Indeed, the latest commentary on the Russo-Ukraine front suggests that peace talks remain at an impasse and that the stagflationary risks presented by the war remain a key risk to the outlook.
The Upcoming Week
Looking ahead, gold traders will also be focused on US data this week, the highlights including the first estimate of Q1 2022 GDP and March Core PCE inflation.
The Real Gross Domestic Product ikely slowed sharply in Q1 following a significant increase to 6.9% AR in Q4 from 2.3% in Q3. ''As was the case last quarter, inventories will play a large role though they will be a drag instead. That said, domestic final sales likely continued to strengthen on the back of firming consumer spending. The inflation parts of the report will likely show acceleration,'' analysts at TD Securities explained.
That should keep focus on the fact that the Fed and other major central banks look very much on autopilot towards higher interest rates, even if there are no Fed speakers scheduled to appear this week to remind us of this. For reference, the Fed is in blackout ahead of next week's policy meeting.
The price is moving into a consolidation at this juncture. However, a break below $1890 support would open the door to a push lower towards the 200-Day Moving Average at $1830.
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