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After touching $2,000 an ounce at the beginning of the week, gold tumbled more than $70 as the U.S. dollar climbed alongside the U.S. Treasury yields.
With the latest trading pattern, analysts see some undeniably bullish signals.
"Gold has been reaching new highs and consolidating. Right now, it is liquidating because of the higher dollar. But how can you be short gold in this market? Any dips in gold and silver are buying opportunities," Walsh Trading co-director Sean Lusk told Kitco News.
At the time of writing, June Comex gold futures were trading $1,937.90, down $64 from the highs seen early Monday.
This pattern in gold has been pretty dominant over the past few months, said Gainesville Coins precious metals expert Everett Millman.
"Every time gold hits the upper resistance level, it tends to sell off. Similar dynamics happen when it falls to its support levels. Given that part, I'm turning bullish on gold, and I expect a bounce-back," Millman said.
A very encouraging sign this time around is gold being able to hold above $1,900 an ounce at the same time as the U.S. dollar and bond yields advance. "As bond yields rise, gold is supposed to be less attractive. The fact that gold is holding its ground is a good sign," Millman said.
The recent selloff in equities is also expected to boost gold as more investors diversify, noted Lusk. "People are starting to see the light in regards to what the aggressive hikes will do to the economy," he said. "And that's on top of the inflationary overtone in the market here."
Federal Reserve Chair Jerome Powell telegraphing two or more half-point rate hikes in the next few months put additional pressure on gold at the end of the week.
But again, the encouraging news is that the Fed's hawkish rhetoric might give the central bank some room to be less aggressive when it comes to actually raising rates and reducing its balance sheet, said TD Securities head of global strategy Bart Melek.
"The latest core inflation numbers were a bit below expectations, which brings us to believe that the Fed might not be as aggressive as people anticipate. Markets are pricing in 50 bps in May. That's a given. And maybe have another 50bps rate hike after that and then see if inflation will start turning lower," Melek told Kitco News.
Even if the Fed proceeds with six more rate hikes based on the dot plot, it is still pretty low relative to where inflation is, added Melek. This is why the market is starting to wonder how serious Fed is about getting restrictive.
Gold's levels for next week
Next week's support is around $1,923-24 an ounce for gold, and resistance is at $1,980 an ounce, Melek pointed out.
The $1,950 an ounce level will be an important one to hold next week, said Lusk, adding that he sees $2,000 an ounce on a sustainable basis as a very likely outcome in the second half of the summer.
Data to watch
Next week, one of the key releases will be the U.S. first-quarter GDP data, scheduled for Thursday. Market consensus calls estimate Q1 GDP to come in at 1% after posting 6.9% growth in Q4 of 2021.
But slower growth is unlikely to discourage the Fed from raising rates by 50 basis points in May, said ING chief international economist James Knightley.
"The next Federal Reserve meeting is on 4 May and market expectations are firmly centred on a 50bp interest rate increase," Knightley said. "The coming data shouldn't impact this outlook meaningfully. 1Q GDP data is expected to show the economy expanded at a 1-1.5% annualised rate, which would mark quite a deceleration from 4Q 2021, reflecting the Omicron wave of the pandemic that impacted people movement quite considerably."
Markets will also be interested in examining the data in more detail to glance at what's been happening with the core PCE, Fed's preferred inflation measure, added Melek. "Inflation is too high, which is why the Fed will get tighter no matter what. The only way to fight inflation when it is no longer transitory is to erode economic activity (aggregate demand)," he said.
Tuesday: U.S. durable goods orders, CB consumer confidence, new home sales
Wednesday: U.S. pending home sales
Thursday: U.S. GDP Q1, jobless claims
Friday: U.S. PCE price index
By Anna Golubova
For Kitco News
