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Gold prices have dropped from their overnight highs but continue to hold support above $1,850 an ounce; Commodity analysts note that the market generally lacks conviction in any direction as U.S. markets are closed for the Memorial Day long weekend.
Spot gold prices are trading in neutral territory Monday morning, last trading around $1,856 an ounce.
Analysts note that the precious metal is trading in the middle of its broader long-term range. Although gold prices continue to benefit from a weaker U.S. dollar, rising risk sentiment, helping to boost equity markets, is taking some shine off the yellow metal's safe-haven allure.
However, some analysts have said that the jump in the S&P 500 last week was a classic bear market. Analysts have said that rising fears of an impending recession will continue to weigh on equity markets.
"There could still be more pain to come," said Craig Erlam, Senior European Market Analyst at OANDA. "But at these levels, it's only natural that the vultures are circling. There isn't a huge amount to be excited about on inflation, interest rates and the economy but that doesn't mean there isn't value out there."
Friday, commodity analysts at Bank of America warned that oil prices, being driven by Russia's invasion of Ukraine, could push the global economy into a 1980s-style recession.
"For next year, we believe oil demand could approach pre-Covid levels but only if Russian liquids production holds near 10mn b/d and OPEC+ supplies increase. With our $120/bbl Brent target now insight, we believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150/bbl," said Francisco Blanch, Global Research head of global commodities and derivatives research at Bank of America Securities.
Market analysts have said that these fears will continue to support gold prices.
"Recent data has shown that the world's largest economy is cooling rapidly, raising fears of a hard landing in the near term. This situation has led traders to price in a less aggressive tightening cycle over the forecast horizon, pulling down Treasury rates of late," said Diego Colman, Market Analyst, in a note published Saturday.
"In terms of technical analysis, gold is stuck between support at $1,840 and resistance at $1,870. A decisive move outside of these levels is required for near-term guidance, but if prices break out on the topside, buyers could become emboldened to launch an attack on $1,895," he added. "If XAU/USD resolves to the downside and breaches the $1,840 area, where the 200-day simple moving average is currently located, selling pressure could accelerate, paving the way for a drop towards $1,785."
However, not all analysts are convinced that gold prices are ready to move higher or that the U.S. dollar has peaked.
In a recent note to clients, Bart Melek, head of commodity strategy at TD Securities, said that he still prefers to sell rallies in the gold market.
"Given that [gold's] positioning is still tilted to the long end of exposure, any signs that inflation will remain stubbornly high, or data pointing to a steadfast economy due to higher wages and the spending of savings, as seen today, Fed Funds estimates could easily move back to the highs seen at the start of Mayor even higher," he said. "…Repositioning could easily force gold to trend down to $1,840/oz and then to just below $1,800/oz. It should be noted that specs have plenty of room to take on new short exposure and reduce long positions."
By Neils Christensen
For Kitco News
Time to buy Gold and Silver on the dips
