Gold Headed Below $2,000 Again As It Keeps Acting Like A Risk Asset
XAU/USD has been experiencing a bearish trend since the beginning of May, when buyers were unable to establish a new all-time high. On Friday morning, the price of Gold even briefly dropped to a 4-week low of $1,925, despite a downgrade in the US credit rating, which in normal times it would have been great for Gold, sending it surging higher.
On Friday we did see a $40 jump, but it was a result of weak USD, which turned bearish after the soft NFP employment report. Although, that didn’t last long and Gold was the first to start pulling back lower that same day, which was a bearish signal. This week Gold started on the wrong foot from the beginning and yesterday the decline accelerated.
Gold ended up lower for the second consecutive day yesterday, influenced by disappointing trade figures from China, a warning about the credit ratings of U.S. banks, and lackluster corporate earnings. These factors led to a shift toward the safety of the U.S. dollar and Treasury bonds, which as it has turned out, is negative for XAU.
Investor appetite for risk diminished following the release of China’s reports, revealing that both exports and imports contracted more than anticipated last month. Exports dropped by a significant 14.5% year-over-year, marking the sharpest decline since the COVID-19 pandemic outbreak more than 3 years ago. Similarly, imports decreased by 12.4%, surpassing the forecasted decline.
In addition to this, Moody’s decision to review a selection of major U.S. banks for potential downgrades, along with the downgrade of debt ratings for several smaller banks and midsize institutions, and United Parcel Service Inc. (UPS) lowering its full-year outlook, contributed to the prevailing risk-averse sentiment. Given this risk-off mood, investors seemed to prefer the U.S. dollar and government bonds over GOLD .
The decline in yields prompted an acceleration of the bearish trend, sending Gold below $1,930 and triggering the take profit target of our sell Gold signal. So, we remain bearish on Gold as it heads for $1,900 and likely lower, especially if US inflation numbers post an increase as expected tomorrow.
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