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Gold Price Faces Downside Pressure Amid Firm US Dollar and Economic Concerns

Posted Tuesday, May 23, 2023 by
Arslan Butt • 2 min read

The price of GOLD (XAU/USD) continues to decline for the second consecutive day, hovering near the intraday low of around $1,961. This downward trend is driven by the strength of the US Dollar and anticipation of the initial Purchasing Managers Indexes (PMI) readings for May from major economies, including the US.

Despite failed debt ceiling negotiations between US President Joe Biden and House Speaker Kevin McCarthy, the US Dollar Index (DXY) remains strong, trading around 103.30. Optimism about avoiding a US default could be contributing to the dollar’s uptrend. Additionally, expectations of a 0.25% interest rate hike by the Federal Reserve in June, along with no rate cuts in 2023, are further supporting the US Dollar and exerting downward pressure on the price of gold.

Concerns over US-China tensions and uncertainties surrounding China’s economic transition are also weighing on XAU/USD. China’s status as one of the world’s largest gold consumers makes any negative developments in the country impactful on the price of gold.

While the GOLD price may witness further downside due to cautious market sentiment and a strong US Dollar, the monthly PMIs, US debt ceiling negotiations, and Federal Reserve communications could provide support for a bearish bias.

From a technical analysis perspective, a clear break below the immediate resistance line around $1,965 suggests further downside potential. The bearish MACD signals add to the negative sentiment. However, the monthly low around $1,950 may offer some support as the RSI indicates oversold conditions.

In the event that the GOLD price remains bearish below $1,950, sellers may target the late March swing low near $1,935. On the upside, breaking the immediate resistance-turned-support line near $1,965 may not guarantee a bullish momentum, as the 100-hour moving average hurdle around $1,974 and a downward-sloping resistance line from May 11 near $1,977 could pose challenges for XAU/USD.

Further resistance is expected near the three-week descending resistance line around $1,989. Overall, the GOLD price is likely to experience further downside, but the journey toward the $1,900 threshold may be long and volatile.

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