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Abstract: Depressed Treasury yields and concerns about a debt ceiling maturity are supporting the dollar and weighing on gold. Gold prices have been under pressure for three consecutive days and are expected to close with their first weekly decline in three weeks.

Fundamentals

Gold stocks fell sharply overnight, dragging the NYSE Arca Gold Bugs index down 3.6%. Along with the overall decline in precious metal prices, the sell-off in gold stocks sent the price of gold for June delivery down $16.60 to $2020.50 at the close of the day.  

In early European trading on Friday, May 12, gold updated the week's trading lows (again testing the $2,000 psychological mark), falling for the third straight session amid concerns about US debt ceiling negotiations and banking woes. Downward pressure on gold prices was also a mix of sentiment such as the rise in the dollar index and more clues to inflation.  

However, while the market paints a broader picture of risk sentiment, S&P 500 futures showed a different mixed close than Wall Street during Friday's European session, appearing to show signs of recovery. (May drive gold prices higher)

The World Gold Council announced on the 12th that although the inflow rate has slowed down compared with March, the global physical gold ETF still maintained positive demand in April.

According to the released data, the total global gold ETF Assets Under Management(AUM) rose 1% to US$221 billion at the end of the month after two consecutive months of positive inflows. Meanwhile, global holdings of gold-backed ETFs increased by 15t to 3,459t.  

Sub-regionally, gold-backed ETF inflows were seen in all regions of the world except Europe. Among them, North American gold-backed ETF funds have total net inflows of about US$1.8 billion year-to-date, significantly more than any other region.  

The World Gold Council believes that the US economy has underperformed expectations. This exacerbated investor fears of a recession, which weighed on bond yield performance and boosted safe-haven demand for gold.

Technically, spot gold is still consolidating near the $2,000 psychological mark. Should gold break the recent highs, it will test $2100 (the bullish trend remains unchanged) as the long cycle shows sustained bullish momentum. While the upward channel is maintained, indicating that the gold price will fluctuate between $1900 and $2100.

At the same time, the upward momentum is under pressure from the key resistance level of $2,062, a break above which could trigger new technical bids that could reach $2,100.  

On the downside, gold could return to trendline support at $1900 in the event of any disappointment in rate hikes.

Technical Analysis

In the 1-hour chart, gold prices remain bearish and justify the formation of a symmetrical triangle this week and a downside breakout of the MA200. The MA200 and triangle bottom are close to $2024 and $2027, respectively. Besides, the bearish MACD signal and the pessimistic RSI fully maintain the short-term bearish bias on gold prices.  

That is, the bears' current target will not be limited to the bottom near $2,000 on Friday, which may break further slide to $1,990. Should this support fail, the monthly bottom of $1977 and the following support at $1974 would be broken further, which could spur more selling.  

Admittedly, from the perspective of the medium-term trend, it is perfectly reasonable for the price to fall below the above levels (more details on our near-term strategy). Currently, we are more focused on short-term strategies.  

In the short term, as mentioned above, the price is bound to complete the rally test after the sharp upside from the demand zone on May 2, implying that the short-term price will return to the bottom of $1990, and then settle into a week-long range. (Volatility ranges from $1990 to $2048)

If gold remains firm above $2040, the $2050 mark will be the last line of defense for bears. Conversely, if the bottom line of the triangle is close to $2024 and $2027, respectively, it will forcibly suppress the short-term rally of gold prices.

Overall, as mentioned in the figure above, gold prices have opportunities for both long and short operations. But for the short term, the path with the least risk is upside. In terms of operation, there are opportunities to operate anytime and anywhere

Trading Recommendations

Trading Direction: Long

Entry Price: 1990

Target Price: 2030

Stop Loss: 1973

Valid until: 2022-05-26 23:55:00

Support: 1978/1973/1969

Resistance: 2009/2015/2025