(Kitco News) – The gold market is ending the week in a precarious position as prices cling to what has become critical support near $4,000 an ounce. The precious metal is on track to post its fourth consecutive weekly loss, its longest losing streak since August 2023.
The gold market has struggled in recent months as the war in Iran significantly disrupted the global energy market, driving oil prices higher and igniting inflation fears. Those fears are quickly becoming reality after the Federal Reserve shifted from a loosening bias to a hawkish stance, signaling support for a potential rate hike by the end of the year.
At the same time, analysts note that resilient economic activity in the face of the global energy crisis is fueling a renewed “American Exceptionalism” trade, providing further momentum for the U.S. dollar.
In an interview with Kitco News, Christopher Vecchio, Head of Futures and Forex Strategy at Tastylive, said that after remaining neutral on gold for the last four months, he turned bearish following the Federal Reserve’s latest monetary policy meeting.
Although the central bank left interest rates unchanged, its updated economic projections showed support for a rate hike by year-end. At the same time, Federal Reserve Chair Kevin Warsh emphasized that price stability is his top priority.
“It’s all about the cost of capital. The game is all about the short-term rates. If you’re a gold trader, the only thing that you need to pay attention to is the two-year yield,” he said. “ If the Fed continues to push towards hikes – it’s hard to believe – but we could see gold within the threes.”
Although two-year Treasury yields have retreated from their recent highs, they remain near their highest level in a year.
Alex Kuptsikevich, Chief Market Analyst at FxPro, said that although gold is ending the week above a critical support level, he is not convinced that $4,000 will hold.
He noted that recent price action has formed a bearish technical pattern known as the death cross, which occurs when the 50-day moving average falls below the 200-day moving average.
“Since the second half of the week, bears have been relentlessly trying to push the price below the psychologically significant $4,000 mark, but eased their grip on Friday afternoon,” he said. “On the weekly charts, attempts to push the price back above the 50-week moving average have failed. However, this is also the price support zone from the end of last year, so we can expect a fairly fierce battle around the current level.”
David Morrison, Senior Market Analyst at Trade Nation, also warned investors that gold’s near-term momentum remains firmly bearish.
“While gold’s daily MACD is looking oversold, it is nowhere near as oversold as it was back in March. That means there is a possibility of another attempt by sellers to flush out the longs,” he said.
Fawad Razaqzada, Market Analyst at FOREX.com, said that next week’s price action will be critical in determining whether gold has established a bottom.
“We have tested waters beneath [$4,000] but there wasn’t much supply there to push prices significantly lower. However, if the resulting bounce again peters out like the previous bullish attempts at higher levels, then a breakdown could be in the cards, potentially paving the way for a return to $3,500 in the coming weeks. On the upside, $4098, the March low, is the first potential resistance level to watch, followed by $4,200.”
Despite the significant downside risks, analysts said current prices represent attractive long-term value for investors. Some analysts argue that it is difficult to envision gold spending a prolonged period below $4,000 an ounce.
They also note that although central bank demand has slowed, official-sector purchases remain an important source of support that is expected to provide a solid floor for the market.
Analysts are also questioning whether the Federal Reserve will ultimately raise interest rates, even if inflation pressures remain elevated.
“For now, investors appear to be pricing in one scenario: the Fed raising rates this year,” said Fahad Tariq, Senior Vice President of Equity Research at Jefferies, in a note published on Friday. “As we’ve written before, we believe it’s possible the Fed takes a ’look through’ approach on the oil price shock, especially now that WTI is below $70/bbl again. We find it difficult to see rates moving higher this year because of the political and fiscal implications.”
Analysts said that next week’s employment data could play a key role in determining the Federal Reserve’s next move.
“A strong US jobs report on July 2, where World Cup-related hiring nudges the headline number above expectations, may reinforce the Fed’s hawkish narrative. If this bolsters the odds of a hike in July, gold could be set for fresh pain below $4000,” said Lukman Otunuga, Senior Market Analyst at FXTM. “Technically, a hold above $4,000 may open the path back toward $4,100 and $4,250. Weakness below this key support could see bears target $3,900 and the 100-week SMA at $ 3,740.”
The U.S. government’s Nonfarm Payrolls report will be released on Thursday next week, as financial markets will be closed on Friday in observance of Independence Day. This year marks the 250th anniversary of American independence.
Economic data to watch next week:
Tuesday: U.S. Consumer Confidence, US JOLTS job openings
Wednesday: Canadian Markets closed for Canada Day, ADP employment, Fed Chair Kevin Warsh to speak at ECB Forum, ISM Manufacturing PMI
Thursday: U.S. Nonfarm Payrolls
Friday: U.S. Markets closed for Independence Day
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