More pain waiting for gold? :: InvestMacro

The past few weeks have been tough for gold.

After securing a strong weekly close below the $1,825 level in late June, the bears were on a tear with various fundamental forces fueling the downside momentum. The precious metal is down nearly 4% this month with prices trading at levels not seen since September 2021!

Last Friday’s explosive US job numbers compounded gold’s woes as expectations of a 75 basis point rate hike at the Federal Reserve’s July meeting were boosted. The US economy added 372,000 jobs in June, an indication of the resilience of the workforce despite signs of slowing economic growth while the unemployment rate held steady at 3.6%.

With the dollar hitting new multi-decade highs and Treasury yields rebounding amid expectations of further interest rate hikes by the Federal Reserve, gold may find itself disappointed and unpopular.

The next week could be volatile for gold thanks to key economic data and risk events. Looking at the technical picture, the bears are clearly in force on H4 and the daily time frame with prices rising above $1,735 as of writing. As fundamentals weigh on the precious metal, bulls may find it difficult to resist in the short to medium term.

Before we cover what to expect from gold next week, it’s worth bearing in mind that the precious metal took a real hit last week, cutting multiple levels of support like a hot knife through butter. Gold is down about 5% since the start of the year and is approaching the key support level at $1,700.

Given how the 10-year Treasury yield is back on the rise amid aggressive rate hike bets, gold may struggle to shine. The precious metal offers no yield, which makes owning it less attractive to investors in an environment where Treasury yields are high.

All eyes are on US inflation data

The biggest risk event for gold this week will be the pending US CPI report.

Wednesday will see the release of the US inflation report with investors anxiously watching to see if prices will rise again or we may have finally peaked. According to a Bloomberg survey, inflation is expected to rise 8.8% year-on-year in June, compared to 8.6% in May. If expectations meet reality, this will be the fastest increase in consumer prices since the figure of 8.9% in December 1981! Such a development will bolster market bets on sharper increases in Fed rates – ultimately stifling investors’ appetite for gold as dollar and Treasury yields soar.

Other than the US inflation report, gold may be affected by ongoing geopolitical risks and recession fears. However, the precious metal is still very sensitive and reacts to dollar and treasury returns.

Gold ETFs prefer bears

According to an automated report from Bloomberg, gold ETFs cut 98,220 ounces of gold from their holdings last Friday, bringing their net purchases this year to 5.26 million ounces. It was the eighth consecutive day of declines and the longest losing streak since May 18.

The outflows could be based on the strong jobs report in the US which has boosted bets for a aggressive Fed rate hike. A gold ETF provides investors with exposure to gold without actually owning it. In this case, the outflows from ETFs are seen as bearish for the underlying asset.

Is gold in trouble?

Gold remains under pressure on the daily, weekly and monthly charts with prices approaching the important $1700 support. Over the past few weeks, the precious metal has been hit hard by a stronger dollar, higher Treasury yields, and Federal Reserve bets on higher interest rates. Prices are very bearish with a strong break below $1,700 potentially opening the door to levels not seen since April 2020.

On the daily charts, the key levels of interest can be found at $1,724, $1,680 and $1,660.

Zooming out to weekly, it’s all around $1,770, $1,700, and $1,680.

Focusing on the monthly charts, prices remain in a wide range with support around $1,700 and resistance at $2,000. It would be wise to keep a close eye on how the $1700 support level prices.

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