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Gold Correction and US Debt Ceiling: Fundamental and Technical Analysis

Don’t be fooled by the gold correction

It is still pressed towards the major short-term support after several declines

Fundamental analysis

The risks arising from the expiry of the US debt ceiling and banking problems support the US recovery and affect the price of XAU/USD.

The price of gold failed to encourage weaker inflation indicators in the US on which the Federal Reserve is betting on a pivotal policy.

US Retail Sales, Fed Chair Powell’s Speech and Debt Ceiling Drama will be crucial to monitor the direction of XAU/USD.

Gold price is still low near $2010 as it searches for new clues to extend the downtrend for three weeks, especially after recording the first weekly loss in three weeks, thus the yellow metal depicts market anxiety amid the fluctuation of the US debt ceiling as well as banking concerns. However, the light calendar Mixed updates from the Federal Reserve as well as government officials spurred bears on gold ahead of this week’s data results.

The price of gold bears the brunt of fears that the United States may default in early June if the debt ceiling is not changed soon. The same seems to be affecting market sentiment and supporting the dollar’s rise. In the same vein, concerns were coming from US banks, as some medium banks recorded a significant decline. In stock prices and deposits in the past week.

Moreover, hawkish comments from Federal Reserve officials weigh on the gold pair. However, Fed Governor Philip Jefferson and St. Louis Federal Reserve Chairman James Bullard defended the US central bank’s current monetary policy while pointing to rising inflation as one of the main challenges. Fed Chair Michael Bowman on Friday (policy rate should remain constrained enough for some time).

Recently, US President Joe Biden indicated that the postponed talks on Friday will be held on Tuesday, and the same thing joins the statements of US Treasury Secretary Wally Adimo, who described the debt ceiling negotiations between the White House as (constructive) to challenge market pessimists and dollar buyers as a result. Gold is down but the bears are taking a break temporarily.

While the aforementioned catalysts weigh on the price of gold, weaker inflation indicators in the US and downbeat data from other fronts fail to defend the price of gold on Friday as preliminary readings of the University of Michigan Consumer Sentiment Index for May fell to 57.7 from 63.5 previously vs. 63.0. Market Outlook What is interesting is that the 1-year inflation forecast fell from 4.6% to 4.5% for the month in question but for the 5-year counterpart rose to the highest reading since 2011 from 3.0% to 3.2%.

Looking ahead, the US debt ceiling talks on Tuesday will be key for gold traders to monitor immediate trends after that US retail sales and Fed Chairman Jerome Powell’s speech should be watched with interest.

Technical analysis of the gold price

Gold price is showing forming a descending triangle on the daily chart, currently ranging between $2050 and $1990 however bearish signals from the MACD as well as the steady Relative Strength Index (RSI) line located at 14 are also indicating more bullish momentum. The downward trend of gold.

However, a clear breach of the support level at $1990 becomes necessary for gold price to target the target around $1868.

It is worth noting that the 21-DMA near $2007 acts as an immediate support for gold price while the 50-DMA around $1972 and $1900 could act as an intermediate stop for gold between $1990 and $1868.

Conversely, the daily closing after $2048 will challenge the formation of a descending triangle on gold price, breaking which quickly could push gold towards the previous annual high at around $2070, then to a record high near $2080.

After that, the $2,100 target could be an added bonus for gold buyers.

The expected scenario in the near term

We expect gold to return to the temporary correction in 2021, then re-test 2010 again, and then rise again, but a four-hour closing above 2021 may end the decline scenario to 2010 and head to 2027.

The expected scenario in the medium term

We expect gold to return to the temporary correction, retesting the 2038 level, then returning the strong decline to 2002 and then 1991, but the four-hour closing above 2048 ends any downside scenario and heads to 2080.

closures

Four hour close higher 2021 heading into 2027 and another close higher 2027 heading into 2038

Closing four hours lower than 2012, heading towards 2002, and the last closing lower than 2002, heading towards 1992.

Saif El Deeb

2023-05-15 06:28:00
#Dont #fooled #gold #correction #Investing.com

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