Gold Price Extends Losses as US Debt Ceiling Concerns and Banking Woes Weigh on Market Sentiment

In early European trade on Friday, the GOLD price (XAU/USD) hit a new intraday low of $2,012, marking the third straight daily drop. Gold is under pressure from the market as a result of worries about the US debt ceiling negotiations and banking troubles. Gold is being weighed down by a combination of factors, including lower yields and a cautious outlook in advance of additional US inflation indicators.

In contrast to the mixed close on Wall Street, S&P 500 Futures are indicating little gains, as US 10-year and 2-year Treasury note rates continue to hover around 3.37% and 3.88%, respectively.

The growing concerns about the upcoming deadline for raising the US debt ceiling and the banking crisis are helping the dollar make its first weekly gain in three weeks and are causing rates on US Treasury bonds to fall for the third week running.

The primary negative news hurting market mood are the drop in PacWest Bancorp share price and the postponing of debt ceiling talks between US President Joe Biden and House Speaker McCarthy. Investor confidence has been eroded by recent statements from US Treasury Secretary Janet Yellen and Beth Hammack, Chair of the Treasury Borrowing Advisory Committee and Co-Head of Goldman’s Global Financing Group.

Meanwhile, risk aversion is being influenced by the contradictory messages coming from the Federal Reserve (Fed) and weaker-than-expected US consumer and producer price data for April.

GOLD traders will be watching the unfolding of events surrounding the prevention of a US default and the protection of the banking system, as well as the preliminary May readings of the University of Michigan’s Consumer Sentiment Index (CSI) and the May readings of the UoM’s 5-year Consumer Inflation Expectations.

The breakdown of a one-week-old symmetrical triangle and the 200-Hour Moving Average (HMA) in GOLD price technical analysis lend credence to a negative view. Bearish MACD indications and a negative (but not oversold) RSI, combined with the 200-HMA and the bottom line of the triangle at about $2,024 and $2,027, respectively, add weight to the bearish case against gold.

Therefore, XAU/USD bears could aim for the $2,000 level, which was the low point last Friday. The subsequent support levels to watch for are the monthly low near $1,977 and the late April swing low near $1,974.

Short-term gains in the GOLD price are met with resistance at the 200-HMA and the triangle’s upper line, both of which are located near $2,024. XAU/USD’s uptrend may encounter resistance at $2,040, when the triangle’s upper line meets the 38.2% Fibonacci retracement level.

The $2.050 level may prove to be the last line of defence for the bears if the gold price holds steady above that level.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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