
Bullish Reversal in Gold – Was the Dip Below $1,900 A Stop Hunt?
Gold was bearish since early May, despite the USD also being on a downtrend, which showed that demand for the precious metal was thinning. The price fell below $1,900 on Wednesday last week, but, it reversed up pretty quickly after some soft economic data from the US. The final US Q1 GDP was revised considerably higher to 2.0% from 1.1% previously, which sent the USD higher initially and XAU/USD below $1,900.
But, prices were revised lower, which showed that inflation is cooling faster than previously thought, and the FED has less pressure to continue raising interest rates. This is bearish for the USD and bullish for risk assets such as stock markets, although GOLD benefited from that too. The price formed a doji on Thursday, which is a bullish reversing pattern after the 2-month decline, and that was followed by two bullish candlesticks on Friday and yesterday.
Yesterday Gold prices began the week slow at first, showing a slight decline due to a stronger US dollar in the Asian session. But then we saw a reversal in the European session and in the US session, the upside momentum picked up pace a softer another soft report from the US. The ISM manufacturing figures posted another decline in activity in this sector which was already in recession, while ISM manufacturing prices also fell lower. This further removes pressure from the FED, so markets are now expecting just one rate hike next month, instead of two that the dot plot was showing after the June meeting when they kept interest rates unchanged.
The performance of bullion continues to be influenced by factors within the United States, particularly after the core Personal Consumption Expenditures (PCE) deflator fell slightly short of expectations last week. Currently, market expectations for future interest rates set by the Federal Reserve show a probability of around 85% for a 25 basis points raise in July. There remains a possibility of an additional rate hike later in the year, but the market is not really in favour of that. Although the 20 SMA (gray) and other moving averages still remain ready to provide resistance above, so we will see how they react if/when the price of Gold gets up there.