(Kitco News) The gold market is in a “danger zone” as prices approach $ 1,800 an ounce, analysts say.
Another jump in the US dollar caused gold to fall on Thursday, with June Comex gold futures hitting a low of $ 1,820.40 an ounce and last trading at $ 1,822.30, down 1.7% during the day. Meanwhile, the US dollar rose to a new 20-year high, most recently at 104.80.
Gold has solid support at $ 1,800 an ounce, but a break below could lead to a steeper sell-off.
“The dollar has put gold firmly in the danger zone and a break of $ 1,800 could lead to further technical sales,” said OANDA Senior Market Analyst Edward Moya. “Gold cannot attract attention until this movement of the dollar is over.”
The struggle for gold after the level below the level of $ 1900 per ounce coincided with the sale on the US stock market. Investors are shifting to risk-averse sentiment because of concerns about the Federal Reserve’s ability to fight inflation without causing a recession.
“Currently, both government bond yields and the stock market are declining, which should suggest that we are close to capitulation with this moment of reducing Wall Street risk. If gold falls below $ 1,800, technical sales could help drop to $ 1,750, ”added Moya.
The wide market sell-off creates a liquidity vacuum that also harms gold, TD Securities strategists said.
“The significant flow of sales continues to weigh on the yellow metal at a time when liquidity is scarce,” strategists said on Thursday. “Prices are now struggling to sustain the bullish market era, which is marked by an upward trend in the yellow metal under the pressure of this sales flow.” bearish sentiments are intensifying. “
On Thursday afternoon, markets also learned that the US Senate had confirmed Federal Reserve Chairman Jerome Powell for his second term with 80-19 votes.
The vote showed widespread support for Powell after the Federal Reserve decided to raise interest rates by 50 basis points in May, the sharpest increase since 2000.
Markets are currently pricing with a 93% chance of a further 50 bps rise in June and a 90% chance of another 50 bps increase in July, according to the CME FedWatch Tool.
“Inflation is likely to remain higher than before the pandemic because wage costs, for example, are rising sharply due to the tight labor market,” said Commerzbank analyst Daniel Briseman. “In this way, the Fed remains under pressure to raise interest rates significantly. Our economists expect an increase in interest rates by 50 basis points at each of the next three Fed meetings. The key interest rate is likely to reach 3.0% by the end of the year.
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