2023-08-18 01:03:00
Gold trading reminder: Multiple limits to decline, but may remain weak in the short term
During the Asian session on Friday (August 18), spot gold rebounded after a continuous decline, but it was still trading around the key $1,900 level. Neither the bulls nor the bears could determine a clear direction. The survey data rose sharply to positive.
Multiple factors limit gold’s decline
On Thursday, the Philadelphia Fed said its outlook for manufacturing business had improved considerably in August, moving back into expansionary territory at 12, compared with a reading of -13.5 in July. The data clearly beat expectations, as economists had expected only a modest improvement to -10.
August was the first positive reading for the survey after 11 straight months of negative readings.
The gold market did not react massively to the latest surprising economic data. Spot gold is currently trading at $1893.27 per ounce. The components of the index have been mixed. The new orders index improved sharply, rising to 16 from -15.9 in July, while the shipments index also rose to 5.7 from -12.5 in July.
On the other hand, the components of the US labor market continued to deteriorate, with the employment index falling to -6.0 from -1.0 in July.
The report also pointed to rising inflationary pressures, which should worry Fed watchers. The price payments index rose to 20.8, well above July’s 9.5.
“The survey’s measures of overall activity, new orders and shipments were all positive for the first time since May 2022. The price index remained close to its long-run average,” the Philadelphia Fed wrote in the report. Expectations for economic growth over the next six months Less prevalent, as the future index for most surveys remained positive, but declined.”
Although recent upbeat economic data has increased people’s expectations that the Fed will continue to tighten policy, the Fed’s minutes show that internal differences of opinion have widened, policymakers are more cautious, and they may be more patient in the future, which limits the decline.
Short-term gold prices may remain weak
Analysts at ANZ said they remained positive on gold’s medium- to long-term prospects despite short-term selling pressure. Daniel Hynes, a veteran commodities strategist and lead author of the latest report, said he does see signs of solid support in the market.
Hynes said in a report: “We believe that the Fed’s interest rate hike cycle is nearing its end, the dollar is still in a structural downtrend, and tightening credit conditions may pose economic risks. These are all providing support for gold.”
While ANZ remains bullish on gold, the current sluggish environment has caused the bank to lower its expectations for new highs in gold prices. The bank currently expects that the average price of gold before Q4 this year will be around US$2,050 per ounce, and it is expected that the price of gold will reach a new high before the end of Q1 next year, with an average price of around US$2,100 per ounce.
Michael Langford, chief investment officer at Scorpion Minerals, said: “Gold prices should continue to weaken in the short term. Traders are tired of volatility and are looking for breathing room by holding dollars and seeing how things stabilize.”
Economists at Credit Suisse say gold price focus is back on key support levels and the 38.2% retracement of the 2022/2023 uptrend, the 200-DMA and June lows of $1904/$1893. They still prefer to think this level will hold again, but a break of $1947 is needed to ease the pressure on this support level, and a break of $1988 will clear the way for a retest of the main resistance level of $2063/$2075. A close below $1893 for the week would mark a more significant top, consolidating the long-term consolidation range and a drop to the next support at $1810/$1805.
Spot gold daily chart
At 9:00 on August 18th, Beijing time, spot gold was quoted at US$1893.23 per ounce
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