- The continued strength of the US dollar ahead of an important event this week increased the bearish pressure on the gold price, which retreated to the $1941 support level yesterday, before settling around the $1950 level at the time of writing.
- It is known that the reaction to the announcement of US job numbers and inflation on the future expectations of the US Federal Reserve's policy will be strong on the performance of the dollar price, and therefore on the price of gold, so caution must be exercised.
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Elsewhere, concerns have grown widely that expectations were too high for the entire US stock market after the S&P 500 rose more than 19% so far this year. Stocks jumped to their highest level in 16 months on hopes that inflation will subside enough to prompt the Federal Reserve to stop raising US interest rates. This, in turn, could allow the economy to avoid a long-awaited recession.
While inflation has indeed fallen since the summer and the economy has remained remarkably resilient, analysts say it is no guarantee that inflation will continue to cool at the same rate. They say stock prices have gone up too much, too fast. Most companies so far in earnings reporting season have outperformed expectations, but that's usually the case. Expectations have been low this season, with analysts calling the worst drop in earnings for the S&P 500 in three years.
For his part, Federal Reserve Chairman Jerome Powell pointed to next Friday's report on the US labor market in general as an important data point. Growth must be strong enough to control concerns about a possible recession. But a strong reading could also mean upward pressure on inflation, which could prompt the Fed to take a more aggressive stance on rates. As is well known, high rates undermine inflation by slowing down the overall economy and affecting stock prices and other investments. And the Fed has already raised its benchmark rate to its highest level in more than two decades, a huge shock after the rate started last year at nearly zero.
Gold Technical Outlook
According to the performance on the daily chart below, the gold price is still undergoing a downward shift, and the bears' control over the trend will strengthen in the event of a move toward the support level of 1935, 1920, and 1900 dollars, respectively. The last level is sufficient to push the technical indicators towards strong oversold levels so far, I still prefer to buy gold from every downward level.
On the other hand, over the same period of time, the bulls will not regain control without moving toward the $1972 and $1985 resistance levels, respectively. The price of gold may remain under pressure until the reaction to the US jobs numbers on Friday.
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