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Abstract: The mentality of "buying at the lows" continues to dominate the gold market, as can be seen from the monthly (positive) closing price. Investors are watching closely for the Federal Reserve to raise interest rates by 25 basis points on Wednesday, as is widely expected. The market now believes that if expectations are interpreted as a "hawkish pause," gold's rally could restart.

Fundamentals

After testing a 13-month high of US$2,048 an ounce earlier in April, gold ended the April session with a small 0.7% rise. This positive gesture was also reflected in the trading on Monday. Gold reversed the day's downtrend in New York yesterday, expanding the gain above US$2,000, erasing all the day's losses in the process. Still, it is confined to the familiar trading range of the past two weeks or so. We believe that the gold market will remain in a "buying at the lows" mentality until some economic issues are resolved.

In the data released on Monday, U.S. manufacturing output recovered some encouraging momentum in the early second quarter.

In April, the ISM Manufacturing Purchasing Managers' Index was in a contraction zone for the fifth consecutive month after 30 consecutive months of expansion, at 47.1, up from 46.3 in March, but lacked the strength to enter the expansion area.

Although sentiment in the factory sector improved in April, the index is still below 50. Manufacturing remains in a cyclical slowdown as higher borrowing costs put pressure on economic activity and commodity demand has fallen from its peak during the COVID-19 pandemic.

As consumer demand is expected to continue to slow through the end of 2023, demand may remain weak for some time. Manufacturing is more cyclical than the economy as a whole against the backdrop of deepening recession fears.

At the same time, the USD retreated amid imminent worries about a debt default, adding strength to the gold rally.

U.S. Secretary of the Treasury Yellen informed Congress on Monday that the U.S. is expected to reach the debt ceiling as early as June 1 if Congress does not raise or suspend the debt ceiling by June 1. Yellen urged Congress to "act as soon as possible" to resolve the US$31.4 trillion legal borrowing limit and protect full trust and credit in the U.S. "We learned from the past debt ceiling impasse that waiting until the last minute to suspend or raise the debt ceiling could cause serious damage to corporate and consumer confidence, increase taxpayers' short-term borrowing costs and have a negative impact on the U.S. credit rating," she said in the letter.

On Monday, the U.S. Department of the Treasury said it expects to borrow US$726 billion in the second quarter, up US$449 billion from January's estimate, as cash balances fell in early April and revenue and expenses were expected to fall in the quarter. The Department of the Treasury also announced that it expects to borrow US$733 billion in the third quarter and expects the cash balance at the end of September to be US$600 billion. The Department of the Treasury said it issued US$657 billion of net marketable debt in the first quarter of this year, leaving a cash balance of US$178 billion at the end of the quarter.

In addition, speculation that the Fed will keep interest rates unchanged for the rest of the year after May seems to have further underpinned the interest-free price of gold. However, the market has fully digested the possibility that the Fed will raise interest rates by another 25 basis points on Wednesday. These expectations still supported a modest rise in U.S. Treasury Securities yields and helped the USD gain some positive traction for the third straight day.

In the case of gold, the above fundamental background makes it prudent to wait for a strong follow-up bid before preparing for any further increase in the risk of key central bank events.

Technical Analysis

Gold has experienced a significant surge since early March, forming a series of higher highs, reaching as high as US$2048. However, the price of gold has fallen rapidly and is currently trading in a familiar range with an unclear direction.

Current momentum indicators suggest that bullish strengths are fading, but bulls have yet to surrender. Specifically, the stochastic oscillator continued to fall after a bearish cross, while the MACD remained positive above the 0-axis. Nevertheless, the current price has not fallen below the range, suggesting that the short-term situation has not yet turned bearish.

If the bullish pressure subsides completely, prices will turn downward, with February's resistance at US$1,959 as initial support. Below this range, gold could challenge 1,933 support before reaching the US$1,890 mark.

Or, if the bulls regain the dominating position, the US$2,000 psychological barrier could provide direct resistance. Breaking this critical level could pave the way for a 13-month high of US$2,048. If it does not stop there, a further rally could test the March 2022 high of US$2,070.

Overall, gold has been consolidating for the past two weeks and seems unable to gain a clear directional impetus. Therefore, new higher highs or lower lows are needed to change this neutral technological landscape. It is recommended to buy at the lows.

Trading Direction

Trading direction: Long

Entry price: 1986

Target price: 2030

Stop loss: 1964

Deadline: 2022-05-16 23:55:00

Support: 1969, 1959, 1933

Resistance: 2000, 2015, 2023