Gold Report: Recession worries appear to be decreasing

In comparison to last week’s report on Gold, the current assessment suggests that gold is experiencing a downward trend. We note the high easing volatility in the gold market, as initial shock of the war in Israel appear to be easing Yet the situation remains volatility and could impact the markets should major developments occur. In this report, we aim to shed light on the catalysts driving gold’s price, assess its future outlook and conclude with a technical analysis.

Gold Market Report

US Employment data comes in lower than expected.

Last Friday the US Employment data was released. The lower-than-expected Non-Farm Payrolls figure, may have been discouraging for dollar traders, as it implied that the labour market may be loosening. In theory, the loosening of the labour market, may weaken the greenback, as market anticipations of another Fed hike or prolonged interest rate pause, may be put into question. As such, the aforementioned scenario, may have provided support for the precious metal, as a result of a potential weaker greenback. However, that appears to have not been the case, as despite the lower-than-expected NFP figure, the upwards pressures on the precious metal appear to have eased.

The decline in gold, despite the weaker the greenback could potentially be attributed to easing tensions in the Middle East, as talks about a potential ceasefire appear to be circulating from various media outlets. Furthermore, the initial shock of the war in Israel appears to be slightly fading away and as such, the upwards momentum which facilitated gold’s ascent, could be nearing its end.

Although, we believe that the situation remains volatile and could re-ignite at any moment. In conclusion, it appears that the dollar and the precious metal, moved in their own separate paths and gold’s price may have been influenced by other factors, such as the lack of a full-blown regional war in the Middle East and the apparent easing of tensions. In the event that the situation in the Middle East stabilizes, it may overpower the weakening of the greenback and could move the precious to lower ground. On the other hand, should tensions flare up again, we may see safe haven inflows into gold.

Pressure on US Treasury Yields appears to be easing.

The US Treasury Yields, appearing to have moved in a downwards fashion since last week, in particular the 10-Year and the 2-Year appear to have moved in a downwards fashion since last week. In theory, declining Treasury Yields which are interest-bearing, could result in a transfer of funds into the preciousmetal, which is considered to be a hedge during times of financial uncertainty.

However, it appears that with easing market concerns of a potential recession in the US, market participants may be opting for more “riskier” assets, as their risk appetite may be increasing. Therefore, given that expectations of a recession are decreasing, the desire to invest in a safe haven asset such as gold, could be decreasing, whilst a desire to invest in riskier assets, increases which may lead to safe haven outflows from the precious. In conclusion, the assumed higher risk appetite of market participants, could be aiding in gold’s descent, as the need to invest in a “safer” store of value appears to be decreasing.

Gold – Technical Analysis

XAUUSD 4-Hour Chart

• Support: 1980 (S1), 1932 (S2), 1870 (S3)
• Resistance: 2005 (R1), 2039 (R2), 2077 (R3)

The precious metal appears to be moving in a downwards fashion. We maintain a bearish outlook and supporting our case is the RSI indicator below our 4-Hour Chart broke below the 50 figure, implying a potential switch from a bullish market sentiment to a bearish market sentiment.  

For our bearish outlook to continue, we would like to see a clear break below the 1980 (S1) support level, with the next possible target for the bears being the 1932 (S2) support base.

On the other hand, for a bullish outlook, we would like to see a clear break above the 2005 (R1) resistance level, with the next possible target for the bulls being the 2039 (R2) resistance ceiling. Lastly, for a neutral outlook, we would like to see the precious metal remaining confined between the 1980 (S1) and the 2005 (R1) support and resistance levels respectively.

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