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Abstract: The market is changing, so we should meet change with constancy. The price of gold was forced to rise by the bottom of US$1,940 yesterday and did not retreat. Under this circumstance, it is undoubtedly "stupid" to wait for the price to retreat today. If our Wave 5 downward structure is proven to be correct, then the previous Wave 3 must be adjusted, which means that Wave 4 must move up; Then the conclusion is that bulls have no choice but to be forced to pull up.

Fundamentals

According to data released on Monday, the U.S. ISM non-manufacturing PMI in May dropped to 50.3 from 51.9 in April, the lowest level this year. After the data was released, traders reduced their bets on the Fed to raise interest rates next week. The U.S. Dollar Index (USDX) fell nearly 30 points in the short term, and the short-term increase of gold price once expanded to US$14.

The PMI of the ISM service industry in the U.S. dropped from 51.9 in April to 50.3 in May. This data is far below the market expectation of 52.4%. This is the fifth consecutive month of service industry expansion, but optimism has been steadily fading since the end of 2022.

The service industry update in May reflects that the economy is gradually slowing down. Similar to the update of the manufacturing industry last week, with the slowdown of demand growth, the backlog of orders and supplier delivery time continue to improve. The improvement in supplier delivery time since February was last seen at the end of the economic recession during the global financial crisis.

Combined with last week's ISM manufacturing report, enterprises signaled that demand growth was slowing down. Combining this with improving the supply chain and easing the price pressure, although the employment growth in the non-farm payrolls report continues to be strong, the Fed has a certain guarantee that the fight against inflation is gradually making progress.

It is worth recalling that many influential Fed officials supported not raising interest rates in June last week. In addition, the market now expects that the Fed is more likely to keep interest rates unchanged at the policy meeting of the Federal Open Market Committee on June 13th and 14th. This, in turn, will lead to a further decline in U.S. Treasury Securities yields and may prevent USD bulls from making aggressive bets. In addition, the generally cautious market sentiment continues to promote the safe-haven gold price and limit the downside.

Against the above-mentioned fundamental background, the path of least resistance to the gold price is upward. However, investors seem reluctant, preferring to wait for the Fed's recent policy prospects to become clearer. Therefore, the focus will still be on the high-profile policy decision in June.

Fundamentals

According to our narrative and our strategy yesterday, the repetition of gold prices in recent trading days fully meets our expectations; However, there were some new changes in the market yesterday, which made our model have to be adjusted (although the expected mid-term decline remained unchanged).

The price of gold has been in a steady decline since it reached a record high of US$2,079 on May 4. According to our simulation graph, the price shows signs of coming out of the falling structure of Wave 5. If our 5-wave downward structure is proven to be correct, then the previous Wave 3 must be adjusted; The price of Wave 3 is not the expected US$1,951, but further moved down to the recent low of US$1,932, indicating that Wave 4 must move up. The path of least resistance to the gold price is upward.

Why do we come to such a conclusion? First of all, as a continuation of last Friday's price drop, yesterday's sharp rise and no retracement means that there are still many trapped selling orders below US$1,940; Second, the price does not retreat, which means that Wave 4 must be weighted and averaged and then raised, but it will not exceed US$2,000, otherwise the Wave 5 downward structure will not be established. Therefore, we conclude that bulls have no choice but to be forced to pull up. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1964

Target price: 1999

Stop loss: 1932

Deadline: 2022-06-20 23:55:00

Support: 1946, 1938, 1932

Resistance: 1969, 1983, 1993