Gold Price Prediction – Gold prices rallied on heightened concerns over inflation

Key Insights

• Gold prices moved higher on weaker-than-expected economic data. 
• US PMI came in below expectations.
• Treasury yields plummeted amid resumed stock sell-off.

Gold prices marched higher as the dollar continued to decline from multi-week highs. The US dollar faced downward pressure, declining from its one-month peaks. Aggressive Fed tightening has already been priced into the market, causing the dollar to continue to slide. 

Benchmark yields slid as the stock sell-off from last week resumed. The ten-year yield fell by 12 basis points today.

The US Flash Manufacturing PMI for May came in at 57.5, while the Dow Jones estimate registered at 57.4. The US Flash Services PMI came in at 53.5, 1.5 under the estimate of 55. These key economic data points signal that mounting inflation has weighed on supply, and declining demand for goods and services. 

Fed Chair Powell is due to speak today and will likely state the Fed’s aim to raise rates to control inflation despite the clear weakness in the economy.

Technical Analysis

Gold prices climb higher and are headed toward the 1900 level of the 200-day moving average. The precious metal should face more upside momentum as slower economic growth underpins XAU/USD. Prices will continue to surge higher as Fed Chair Powell tries to rein in inflation.

Support is seen near the 200-day moving average near 1839. Resistance is seen near the 1900 level.

Short-term momentum is positive as the Fast Stochastic generated a crossover buy signal. Prices are no longer oversold as the fast stochastic prints a reading of 63.95, headed for the overbought trigger level of 80. 

Medium-term momentum turns positive as the MACD might generate a crossover buy signal. This occurs as the 12-day moving average minus the 26-day moving average crosses below the 9-day moving average of the MACD line.

The  MACD (moving average convergence divergence) histogram has a negative trajectory that points to lower prices.