Gold slumped below $1,940 on Thursday to its lowest level in more than two months as US Treasury bond yields rose and the US dollar (USD) continued to strengthen. He carried his fall into the third week. Bitcoin, on the other hand, is now starting to recover, but it was seriously close to losing $26,000 on Thursday due to macroeconomic developments. At this point, the May jobs report coming from the US next week and the developments regarding the US debt limit negotiations will help the markets decide whether XAU/USD will recover from the bearish pressure. It will also give an idea about the direction of Bitcoin. Here are the details…
What happened last week? What affected Bitcoin and gold?
The risk-averse market atmosphere helped hold the USD on Monday as no progress was made in the US debt limit talks and did not allow XAU/USD to rebound after the sharp fall the previous week. Also, hawkish comments from FED officials pushed US yields higher, further depressing the gold price. Louis Fed Chairman James Bullard said the Fed wants to fight inflation while the labor market remains strong. He added that the policy rate will probably need to rise another 50 basis points this year.
After Tuesday’s volatility, XAU/USD came under heavy bearish pressure mid-week as US yields continued to rise. As we reported on cryptokoin.com, Fed Chairman Christopher Waller said on Wednesday, “I do not support stopping interest rate hikes unless we have clear evidence that inflation is moving towards our 2 percent target.” These statements pushed the 10-year U.S. Treasury yield to 3.8 percent for the first time since mid-March.
Dollar index rises
On Thursday, US Bureau of Economic Analysis (BEA) data showed that the annual Gross Domestic Product (GDP) growth rate for the first quarter increased to 1.3 percent from the previously estimated 1.1 percent. As this data revived expectations for a new Fed rate hike in June, the 10-year yield began to rise, causing the inversely related XAU/USD to drop below $1,940. According to the CME Group FedWatch Tool, the probability of the Fed not changing the policy rate in June has dropped to less than 60 percent from about 80 percent at the beginning of the week.
Meanwhile, debt limit talks continued throughout the week without any progress. This forced investors to take a cautious approach. In contrast, the USD benefited from safe-haven flows. XAU/USD’s recovery attempt came after the Federal Reserve reported that the Core Personal Consumption Spending (PCE) Price Index, the Fed’s preferred inflation indicator, rose 4.7 percent year-on-year in April, compared to analysts’ forecast of 4.6 percent. remained shallow on the last trading day of the week.
What will affect the markets next week?
On Tuesday, the Conference Board will release May Consumer Confidence Index data. The survey’s one-year inflation expectation decreased from 6.3% in March to 6.2% in April. If there is a noticeable decrease in this component in May, the USD may find it difficult to find demand. Still, any market reaction will be short-lived, as traders are likely to refrain from placing big bets ahead of high-end data later in the week.
It will also release its May Manufacturing PMI report on Thursday. Markets will closely monitor the Price Paid Index, the inflation component of the PMI survey. This index, which was 50.4 in March, rose to 53.2 in April, pointing to the strengthening of inflation in the manufacturing sector. Any further increase in this component could put pressure on XAU/USD, helping the USD to remain resilient against its rivals. ADP’s private sector employment report will also be on the US economy agenda.
As long as there are no significant deviations from market expectations, investors may prefer to wait for Friday’s May jobs report before deciding whether labor market conditions support a pause in the current rate hike cycle next month.
Debt ceiling deal critical for next week
Nonfarm payrolls in the US are expected to increase by 180,000 in May, after a better-than-expected increase of 253,000 in April. Fed policymakers, including Chairman Jerome Powell, say labor market conditions in the US remain tight. Monthly growth in NFP softened in May. However, NFP data in line with or above market expectation will likely cause XAU/USD to turn bearish ahead of the weekend, according to analysts.
On the other hand, a figure below 100,000 could force investors to reassess the Fed’s rate outlook and trigger a decline in US yields. In this scenario, the gold price will be able to post strong gains on the last trading day of the week. Meanwhile, market participants will continue to focus on new developments regarding debt limit negotiations. The deadline for Republicans and the White House to reach an agreement to raise the debt ceiling is reportedly June 1st.
Bitcoin and gold can go both ways
According to analysts, markets may continue to be risk-averse before this issue is closed. While the USD is likely to outperform risk-sensitive currencies, strong demand for safe-haven US government bonds could lower yields and help XAU/USD recover. If a deal is reached earlier in the week, a relief rally could trigger USD selling. However, investors will wait for the aforementioned data releases before betting on a stable USD weakness.
Meanwhile, the strength of the USD has made it difficult for gold price to recover overall this week. It is also worth noting that the safe-haven influx has also negatively impacted cryptocurrencies in the “risky” category, such as Bitcoin. Usually, when Bitcoin is rising, gold will fall, and when gold is rising, BTC will fall. So, there was an inverse correlation between BTC and gold. However, that changed in April. According to Blockchain analysis firm Kaiko, the correlation between Bitcoin and gold is currently around 50 percent.
Kaiko analyst Dessislava Aubert said this represents the strongest link between the two assets seen in more than a year. Therefore, next week, the Bitcoin market will closely monitor the gold and dollar index. Because a sale in USD causes an upward movement in gold and BTC.
Technical view of gold price
According to analyst Eren Sengezer, after testing this support several times earlier in the week, XAU/USD closed on Thursday below the Fibonacci 23.6 percent retracement level of the recent uptrend from the $1,950 level. Also, the Relative Strength Index (RSI) indicator on the daily chart stays well below 50, confirming the downtrend. On the downside, the 100-day Simple Moving Average (SMA) is aligned as key support at $1,935. A daily close below this level could attract sellers and open the door for a long decline towards $1,900 and $1,890.
According to the analyst, the price of gold must stabilize above $1,950 to attract buyers’ attention. In this scenario, XAU/USD could face temporary resistance at $1,980 before targeting $2,000. Meanwhile, a forecast poll paints a mixed picture for XAU/USD in the near term. The one-week average target is around $1,940. The majority of experts surveyed think that the price of gold will reclaim $2,000 in this time frame.
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