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Abstract: Gold prices in the U.S. completed a test of the supply zone after the announcement of the April CPI. While the bulls are still holding above the key support level of $2,000, from the perspective of the "triple top" pattern, the price may turn downward in the future.

Fundamentals

In our previous article, "Gold Price May Not Regain Its Luster After Breaking Historical Highs", we highlighted the fundamental backdrop driving gold prices higher and the key factors that have a significant impact on price behavior.

The recent volatility in risk sentiment has been the driving force behind the pricing of precious metals. Among them, the Fed's "hawkish pause" overlaid with the banking crisis, supporting gold prices to the upside. At the same time, the market remains optimistic about the continued upside of gold prices after the mixed U.S. inflation data for April.

Gold prices fully recovered from Friday's non-farm payrolls losses after yesterday's U.S. April CPI release and firmly stabilized above $2,000, and even $2,020. Nonetheless, U.S. Treasury yields have risen across the board since the Federal Open Market Committee raised its interest rate target range to 5.00%-5.25% last week. Likewise, real yields are rising. (Real yields have been negatively correlated with gold in the past.)

The World Gold Council's latest monthly gold report reviews the gold market in April, with gold up just 0.1% in U.S. dollar terms, consolidating after a strong quarter of gains. Support for gold came from lower interest rates and positive ETF inflows, while lower inflation expectations and profit-taking caused a drag.

With one focus over, the next one is gradually catching the market's eye - the looming debt ceiling crisis has become the main risk factor for gold in the near term.

The stalemate in the U.S. debt ceiling negotiations has weighed on market sentiment. The market is becoming more sensitive to the topic by the day and there may be growing concern that an adverse event may eventually be needed to break the political impasse. In such a scenario, risk aversion tends to tilt toward the U.S. dollar over gold, meaning the U.S. dollar may have a significant upward revision opportunity in the short term.

Technical Analysis

The technical aspect of gold remains biased towards the short-term uptrend since the low of $1,969 on April 19, 2023. However, the short-term moving averages in the 4-hour chart suggest a possible correction. The RSI is falling in positive territory, while the MACD is consolidating sideways around the 0-axis.

In terms of the structural pattern, the price action could lead to an imminent major directional shift in the market. Among them, the high of $2,048 (right shoulder) is lower than the left shoulder, and a bearish engulfing pattern appears on the right shoulder. At the same time, the bulls have completed the test of the supply area where the "non-farm payrolls" sell-off started last Friday, forming a "triple top" structural pattern. This means that the downside may continue.

A continuation of the downtrend could find support ahead of the 50-period SMA at $2,015, the psychological mark of $2,000, and the 200-period SMA. Any price move below the latter could open the way for a more negative structure until our final target of $1,920.

On the other hand, a breakthrough above $2,048 again could boost optimism for another bullish wave, up to a retest of last Thursday's historical high of $2,079.

Overall, gold is bullish in the long-term time frame, but a correction is expected in the medium-term trend. It is recommended to go short at highs.  

Trading Recommendations

Trading Direction: Short

Entry Price: 2038

Target Price: 1920

Stop Loss: 2080

Valid Until: 2022-05-25 23:55:00

Support: 2023, 2015, 2000

Resistance: 2048, 2060, 2079