Gold Price Outlook: Bears Take Early Control as US Dollar Index (DXY) Rises

Gold surrendered Friday’s gains as a retest of $2300 gains momentum.
US dollar index (DXY) rises but faces stern resistance at 105.63.
Geopolitics remains on the back burner for now, but risks remain.

Fundamental Overview and Week Ahead

Gold prices began the week on the backfoot, with a slight gap to the downside at the open. This has seen the precious metal falter to trade below the $2320 heading into the European open. A quiet weekend on the Geopolitical front also added downward pressure on gold prices as any safe haven appeal has, at least for now, disappeared.

Last week saw some real whipsaw price action as markets first digested the potential of “higher rates for longer’ before the PPI data which followed painted a different picture.Following the PPI data however, the prospect of two rate cuts from the US Federal Reserve remains on the table.

US Federal Reserve Interest Rate Probabilities

Source: LSEG Eikon

The US Dollar for its part has started the week on the front foot. The US Dollar Index (DXY) advanced on Friday toward the May 9 high before a pullback to end the day below the key resistance area at 105.63.

US Treasury yields remain supported suggesting that the potential of ‘higher rates for longer’ continues to linger on the minds of market participants. This in turn is also hampering gold prices as market participants opt for US Treasuries thereby driving flows away from the precious metal.

US Dollar Index (DXY) Daily Chart,Jun 17, 2024

Source: TradingView.com (click to enlarge)

The Week Ahead: Central Banks, Geopolitics and Fed Policymakers

Looking ahead to the rest of the week, US data may take a backseat. We have four Central Bank meetings scheduled from Australia, UK , Norway and Switzerland. Given the volatile political developments in France and the heavy European Central Bank calendar the US dollar story may be relegated to spectator status this week.

We do have US retail sales data for May due out on Tuesday and anything but a significant beat or miss is unlikely to have a major impact on market movements. Federal Reserve Policymakers are scheduled to speak this week with the Fed’s Williams and Harker set to kick things off on Monday. Market participants will no doubt be keeping an eye on the comments and the tone of policymakers following the PPI release and Fed meeting last week. The week is rounded off by the S&P global PMI data on Friday, which in a similar vein to the retail sales data is unlikely to have a major or lasting impact on market moves.

On the Geopolitical front, developments in the Middle East are ongoing with news this morning that Israeli Prime Minister Benjamin Netanyahu has dissolved his war cabinet. As more news of this filters through, the next steps taken by Israel could prove to be key. Escalation remains the biggest risk to markets as market participants weigh the impacts of a wider war in the Middle East. Any increase in tensions, particularly with Hezbollah on the Lebanese border could see the safe haven appeal return and gold rise back toward the $2400 mark.

Gold (XAU/USD) Technical Outlook

Looking at Gold from a technical perspective, and the precious metal is coming off its best week in four. A bullish engulfing candle off a key support area adds further confluence that a rise in gold prices may be on the horizon.

Dropping down to the daily time frame and things get a bit more tricky. On the Daily we appear to have printed a head and shoulder pattern with the neckline resting around 2320-2325 (see chart below).

Gold (XAU/USD) Daily Chart – June 17, 2024

Source: TradingView.Com (click to enlarge)

On the H4 time frame, price of the precious metal has been range bound for the since last Tuesday. The range between 2333 and 2300 remains pertinent and could come back into play early this week.

Gold (XAU/USD) H4 Chart – June 17, 2024