Gold prices fell back as central banks signaled their reluctance to cut interest rates.
Before the US market opened on Tuesday, May 21, the spot gold price fell back to $2427, as comments from global central bank policymakers showed their reluctance to commit to interest rate cuts. In a relatively high-interest-rate environment, precious metals tend to perform worse because investors can earn returns by holding cash or bonds. However, geopolitical concerns stemming from the conflicts in the Middle East and Ukraine persist, providing a positive counterbalance to gold prices. The hoarding of gold by emerging market and BRICS central banks as a policy response to Western sanctions is a further supporting factor. A shift in the interest rate outlook has led to the decline in gold prices.
Time:
2024-05-22 08:25
On Tuesday, May 21, before the US market opened, the spot gold price fell to $2427, as comments from global central bankers showed their reluctance to commit to interest rate cuts. In a relatively high-interest-rate environment, precious metals tend to perform worse, as investors can earn returns by holding cash or bonds.
However, geopolitical concerns stemming from the Middle East and the Ukraine conflict persist, providing a positive counterbalance to gold prices. The hoarding of gold by emerging market and BRICS central banks as a policy response to Western sanctions is a further supporting factor.
Shifting Interest Rate Outlook Leads to Gold Price Decline
Gold prices fell on Tuesday after the heads of the US and Australian central banks not only refused to commit to rate cuts but also discussed the possibility of rate hikes.
Cleveland Federal Reserve President Mester said on Monday that the Fed might even "raise rates" if inflation rises, and that the expectation of the Fed cutting rates three times this year is "no longer appropriate".
On Tuesday morning, the Reserve Bank of Australia (RBA) released the minutes of its May meeting, which showed that the board discussed the possibility of raising interest rates. This was the first time they had discussed tightening policy in months.
Technical Analysis: Gold Price Falls, Relative Strength Index Divergence.
Gold prices fell on Tuesday from their recent high near $2450, forming a shooting star candlestick pattern on Monday. This candlestick pattern typically appears when prices reach a new high and then fall to close near their low. This is a bearish signal after an uptrend, especially when followed by a down day. If Tuesday closes lower, it could signal a deeper correction is imminent.
However, if Tuesday ends higher, it would diminish the significance of the "shooting star" and could be a sign that the dominant bullish trend is more likely to continue.
The Relative Strength Index (RSI) momentum indicator shows a significant bearish divergence from the price on the daily chart, further suggesting that a correction may be imminent. While gold prices rose above the April 12 peak and reached a higher high on May 20, the RSI failed to reach a higher high. This is a bearish sign, suggesting a higher probability of a pullback.
If a pullback occurs, gold could fall to the uptrend line support at $2,360.
However, the short-term and long-term trends for gold are bullish, and considering the old adage "the trend is your friend," even if a pullback occurs, a recovery is ultimately possible.
A break above the all-time high of $2450 could lead to further gains to the next target, the important psychological level of $2,500.
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In fact, as gold prices fluctuate, Wall Street's major banks have recently shown a clear divergence in their views on gold prices. Unlike Goldman Sachs and Deutsche Bank, which are optimistic about gold's performance, Citigroup believes that the long-term outlook for gold prices is not optimistic.
Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.