Some Turbulence Expected Soon - RSBL

 The week opened on a slightly negative band for gold, as prices fell on Monday, sticking to a tight trading range seen over the past three weeks as markets turned cautious ahead of upcoming U.S. consumer inflation data and a Federal Reserve meeting.

Last week gold was supported by soft labour data. This pushed gold prices a bit over expectations that the Fed will skip a gold rate hike at the conclusion of a two-day meeting on Wednesday.

There is a lot of geopolitical and economic uncertainty occurring globally. 

The ongoing Ukraine crisis, Fed's economic uncertainty and financial crisis has led to a lot of volatility in the market. It has pushed gold into a tight trading range. 

Gold prices have stuck to a trading range of between $1,930 and $2,000 an ounce over the past three weeks, with uncertainty over the economy and monetary policy offering little cues for a breakout.

Gold stands to benefit from any potential pause by the Fed, and is expected to see increased safe haven demand as global economic conditions worsen this year. But given that U.S. interest rates are likely to remain higher for longer, upside in the yellow metal may be limited as returns on debt appear more attractive.

Rising interest rates had battered gold prices through 2022, as the Fed enacted its most aggressive pace of monetary tightening since the 2008 financial crisis. But the prospect of a pause in 2023 has kept gold upbeat so far this year.

While we will not argue against an upside follow-through in gold and silver prices,we still think the markets lack solid and sustainable bullish fundamental themes.

While we see the PGM markets continuing to slide, we see gold weakening but remaining capable of respecting consolidation support at $1,950. Silver on the other hand has a very strong chart set up and could be separating from financial market related fundamentals and in turn may be shifting toward factoring tight supply and hope for tech related demand improvement. However, both gold and silver should expect turbulence in the coming 3 sessions with global inflation readings and a US Fed rate decision scheduled for Wednesday afternoon. Uptrend channel support in July silver is far below the trade today down at $23.91 with closer in pivot point support seen at $24.32. As indicated already we see August gold remaining within a $1950 and $2000 trading range, but chart support is likely to be enhanced by weakness in the dollar.

Sentiment in the gold market remains bullish as momentum supports higher prices but analysts are warning investors that they should not expect prices to break above $2,000 an ounce next week as the Federal Reserve looks to maintain its hawkish monetary policy stance even as it leaves rates unchanged.

However, signs of a softening US jobs market should provide for ongoing declines in the dollar and ongoing declines in US treasury yields which are probably capable of pushing gold back up into consolidation resistance at $2001. 

Dampened Demand For Gold Over Rate Hike

 Last week gold ended  with a nearly 0.35% gain at $1,989.65, failing to close above $2,000 throughout the week. Concerns about rising inflation continued after 1Q A core PCE QoQ and 1QA GDP price Index came in higher than expected.

These damp sentiments continued as the week opened. Gold prices moved little in early Asian trade on Tuesday, hovering well below key levels as anticipation of a likely interest rate hike by the Federal Reserve supported the dollar and dented demand for the yellow metal.

Federal Reserve’s policy meeting due in 2-3 May this week remains each investors focus. The Fed is widely expected to deliver another 25 basis point rate hike on Wednesday amid strong US economic data and persistent inflationary pressures. Data showed that US consumer sentiment improved in April, while core PCE inflation exceeded forecasts in March.

But there is uncertainty about rate hikes and markets are not sure whether the central bank will signal a pause in its gold rate hike cycle.

This has kept demand for gold limited, given that rising interest rates push up the opportunity cost of holding non-yielding assets.

Bullion is known as a hedge against inflation and economic uncertainties, but rising gold rates tend to diminish demand for the zero-yielding asset.

Markets were also watching for a potential U.S. debt default, especially as a deadline for the government to raise the debt limit approaches. Treasury Secretary Janet Yellen warned of a potential default by as early as June 1.

Gold has struggled to hold the $2,000 an ounce level for nearly three weeks, as the yellow metal consolidated gains after surging to near-record highs earlier in April.

The short term and near term future of gold , is both uncertain and indecisive 

The next 18 months will be especially risky as the U.S. embarks on the 2024 election season

The political timetable of the election cycle between now and the 2024 elections in the United States and Taiwan will likely lead to more push-the-limit anti-Chinese aggressive foreign policy from the US. 

Fears of the Fed, coupled with a stronger dollar and yields will continue to see limited safe haven demand for gold, even as concerns over a U.S. banking crisis were renewed by the emergency takeover of First Republic Bank.

The future path of the yellow metal is likely to be determined by the Fed’s stance on interest rates,  any new developments in the banking crisis, important decisions before the election campaigns and most importantly the US China ties.