Gold outlook shaky as markets look for economic direction

The current outlook for gold and silver prices remain uncertain as the daily moving average convergence and divergence continues to fall back to neutral levels, experts said. 

Gold is set for considerable weekly losses on Friday, with new risks of decline appearing before the release of the US Personal Consumption Expenditures (PCE) Price Index data.

Gold prices are testing a crucial daily support level as the US dollar (USD) stabilised after its overnight rebound from a more than three-year high.

Dhwani Mehta, senior analyst at FXStreet, said in a report:

At the time of writing, the most-active gold contract on COMEX was at $3,308.10 per ounce, down 1.2% from the previous close. 

Declining safe-haven demand 

Brian Lan, managing director at GoldSilver Central, Singapore, attributed this week's price dip to the Israel-Iran peace deal. 

He added that prices are consolidating with a slight downward bias and are expected to remain around current levels.

After 12 days of the most intense confrontation between Iranians and Israelis, a ceasefire took effect on Tuesday, allowing both sides to resume normal life.

Moreover, the threat of closure of the Strait of Hormuz, an important trading route for commodities, diminished.

This further alleviated concerns over supply disruptions of oil, metals and agricultural products. 

As concerns diminished, the safe-haven appeal for commodities such as gold and silver also weakened, thereby limiting demand among investors. 

Economic data and interest rates

In May, the annual core PCE Price Index is anticipated to rise by 2.3%, up from April's 2.1% growth. 

On a monthly basis, the index is projected to increase by 0.1% in May, matching April's pace. 

Should core PCE readings exceed expectations, it could fuel speculation that the US Federal Reserve might begin lowering interest rates as early as July, Mehta said.

Market expectations currently indicate a 63-basis-point rate reduction this year, commencing in September.

“Therefore, the data will hold key to determining the timing of the next Fed rate cut, significantly impacting the USD-denominated and non-yielding Gold price,” Mehta added.

Speculation arose that US President Donald Trump's challenge to the Fed's credibility might result in the appointment of a dovish successor, dubbed a 'lame duck,' which negatively impacted the dollar.

Technical outlook

David Morrison, senior market analyst at Trade Nation said:

Morrison added that silver prices are also experiencing something similar after moving above $36 per ounce. Prices are likely to consolidate around this level. 

Gold is currently retesting bids below the 50-day Simple Moving Average (SMA) at $3,325. This comes after successfully defending this strong support level earlier in the week.

A new downtrend could be confirmed if the weekly closing price falls below the 50-day SMA support, according to Mehta.

“Ahead of that, the $3,295 demand area will be retested, which is the intersection of the weekly low and the 38.2% Fibo level of the same ascent,” FXStreet’s Mehta.