US consumers remain pessimistic about future of gold
The precious metal declined on Tuesday as markets were spooked by the short-term surge in the US dollar, sending the whole commodity complex lower. The Conference Board’s consumer confidence index dropped to its lowest level since June as consumers’ views of the future and the present diverged, with the latter being somewhat more optimistic.
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Consumer confidence index fell to 101.3 from 104.0 in March (updated from 104.2). Furthermore, the current situation index rose slightly to 151.1 from 148.9, while the consumer expectation index fell sharply, from 74.9 to 68.1.
The Expectations Index has been below 80, which is often linked with a recession occurring within the following 12 months, every month except for December 2022. Meanwhile, consumers’ 12-month inflation forecasts haven’t moved much from March to April, staying at 6.2%. While this is lower than the 7.9% peak seen last year, it is still an elevated rate.
Markets expect rate cuts, Fed rate hikes
Even though the Fed is widely expected to raise rates by another 25 basis points at its meeting next week, Fed Fund futures prices indicate that markets are pricing in a probability of over 60% for a halt in rate rises around the middle of the year.
However, there has been no signal from the central bank that it plans to moderate its hawkish approach in the coming months. The dollar rose as metal prices fell as a result of recent comments from many Fed officials signalling that they want to raise interest rates more to combat persistent inflation.
“Gold’s bullish outlook is based on the amount of risk that is on the table: earnings risk, slower lending, financial stability concerns, and sticky inflation,” said Ed Moya, an analyst at online trading platform OANDA.
CME Group’s early data shows that on Monday, open interest in gold futures markets increased by roughly 1,300 contracts, reversing some of the previous day’s decline. Instead, trading volume fell for the third trading day in a row, this time by about 19,500 contracts.
Russia selling gold reserves
According to fresh IMF data cited by the World Gold Council, Russia‘s central bank dumped 3.1 tons of gold into the market in March. Russia did this just as the precious metal began a significant surge.
The Central Bank of Russia reduced its official gold reserves by 3.1 tons in March. Moreover, it has now published its monthly gold holdings back to February 2022, according to the WGC’s senior analyst Krishan Gopaul. The newest numbers show that Russia’s gold reserves have grown by 28 tons.
The fight for $2,000 on gold continues
Gold bullion prices are still higher above the key resistance level of recent highs at $1,940. A significant correction may begin if the price slips below that level, and the resulting drop beyond $1,880 is possible.
On the upside, the resistance is near $2,000, followed by the current cycle peak at $2,040. The bulls are certainly hoping for this level to be broken, as many are probably still holding positions after the recent surge.
Even though the pattern seems like it is going sideways for a few days, a downward cycle is forming. The price is still far away from the 200-day average for now.
Gold 1D chart, source: tradingview.com