Gold price heads for the worst week in 11 months, but is the market oversold?

(Kitco News) The gold market is looking to close the week at about 4%, its worst weekly close since mid-June 2021. But the current price level of around $1,800 an ounce could put gold at risk of a bigger sell-off, analysts say.

Gold was hurt by technical selling pressures after dropping below $1,830 an ounce on Thursday, serving as a support. Precious metals also suffered from the higher US dollar and expectations of an aggressive Federal Reserve on the back of higher-than-expected inflation data.

June Comex gold futures were last at $1,809.90 an ounce, down more than $70 on a weekly basis.

“We’ve seen CPI come in stronger than expected this week. The pace of 8.3% in April is problematic, especially after the markets expected 8.1%. That automatically told us that the Federal Reserve would not continue its aggressive stance. soften,” TD Securities head of global strategy Bart Melek told Kitco News. “Inflation is unlikely to fall any time soon.”

This outlook has weighed on gold and the precious metal moved significantly lower. “The $1,830 was a good support, but we crossed it. Now $1,790 is the next support level as gold consolidates,” Melek said.

Gold was also used for liquidity purposes this week during a massive sell-off in US equities, with the S&P 500 falling 18% since late December.

“The decline of gold is that investors are covering losses elsewhere. Liquidation for traders and investors to make up for large losses in the stock markets. Gold is one of the easiest things to turn into cash in difficult times,” said Everett Millman, expert in the field of precious metals from Gainesville Coins. Friday.

Looking to next week, if $1,800 crosses, gold is at risk of a steeper sell-off. But traders should broaden their trading range for gold in the near term due to ongoing volatility in all markets, Millman added.

“The risk of falling further below $1,800 is present right now, more than ever before this year. We will probably see a lot of sideways trading,” he told Kitco News. “Even with increased downside risk, we could still move above $1,900 in a few weeks. Traders should broaden the reach of gold due to the side effect of increased volatility.”

The $1,830 to $1,790 is the likely range for gold next week, Melek said. “There is a risk that gold will fall even lower, especially if we see economic data, higher energy prices or disappointments in harvest data that are better than expected. If the estimates of the rate hike by the Fed rise, gold will be hit a little more,” he added. he to it. †

A lot of money has been taken out of all markets this week, including stocks, crypto and gold, said RJO Futures senior market strategist Frank Cholly. What matters now is the technicalities, which is the $1,800 an ounce level for gold.

“It’s a high level, and $1,775 could be in the cards as well,” he told Kitco News. “At least the market is pausing here and going sideways as it builds and recovers a new base. We’ve taken a lot of premium out of the market.”

The gold market is now oversold, and it should come as no surprise to see a rebound to $1,865 an ounce and then $1,900 an ounce, Cholly added. “Gold sales are over the top, and it’s closer to the bottom than the top at this level,” he said. “A close above $1,840-$1,850 is needed to encourage the move. Investors should watch the US dollar and interest rates.”

Data to watch

Monday: NY Empire State Manufacturing Index
Tuesday: Retail, Industrial Manufacturing, Fed Chair Powell Speaks at the Wall Street Journal Future of Everything Festival
Thursday: jobless claims, Philadelphia Fed Manufacturing Index

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to keep the information provided accurate; nor Kitco Metals Inc. neither the author can guarantee such accuracy. This article is for informational purposes only. It is not a request to exchange commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for losses and/or damages arising out of the use of this publication.

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