Gold price looks set to record its fourth straight week of losses after plunging to its lowest level since September 2021 on Wednesday. Granted, easing in the rally of the US dollar has erased some of the previous session’s losses; even as it remains below the critical support-turn-resistance level of $1,750. As at the time of writing, the precious metal was at $1,742.66 after bouncing off the prior session’s intraday low of $1,732.99.
Recession woes
Heightened inflationary pressures and the subsequent concerns that major economies such as Europe and the US are headed for a recession have sustained a risk-off sentiment. Conventionally, gold and other precious metals are viewed as safe havens in times of such economic turmoil. However, the US dollar is the preferred safe haven; an aspect that has made gold more expensive for buyers holding other currencies.
The minutes released on Wednesday showed that the central bank’s officials paid close attention at the need to aggressively deal with the high inflation during the Fed meeting. Members of the Federal Open Market Committee (FOMC) noted that based on the economic outlook, an even more hawkish stance may be appropriate in coming months, even if that means slowing the economy.
Subsequently, another rate hike of about 50 or 75 basis points is likely in the Fed’s July meeting. This comes after the super-sized increase of 75 basis points in June.
Notably, an environment of higher interest rates tends to be bearish for gold price. Indeed, that is largely the reason behind the 16% decline it has recorded over a span of four months.
Gold price technical analysis
A look at both the fundamentals and technicals signals a continuation of gold price’s downtrend. As shown on a daily chart, it is still trading below the 25 and 50-day exponential moving averages. Besides, it is in the oversold territory with an RSI of 27.
While a corrective rebound is likely, I expect gold price to remain on a decline in the short term. In particular, the previously steady support zone of 1,767.36 will be a resistance level to watch. From that perspective, it may trade sideways in the near term with 1,733.41 as the lower border. Below that level, 1,715.70 and the psychological zone of 1,700 will be viable support levels.
