Gold Prices are Gravitating towards $1930

Gold has lost 0.7% to $2015 per troy ounce this week. They have tested the support at $2010 for a second time since the beginning of January. This is a clear signal of the weakness of gold prices. It is also confirmed by fundamental factors.

It is time to prepare for a possible strong correction. SPDR Gold Trust (GLD) has reported capital outflows above $1.3 billion during the past four weeks. Similar capital outflows in late July and September of 2023 led to a decline of gold prices by 4.5-5.0%. Gold has lost 2.4% since the start of 2024. A dive by another 2.6% will direct prices to $1960 per ounce, and possibly further down to $1930. The decline could be even more aggressive to $1843 per ounce to close the gap of October 9, 2023. But this drop requires more fundamental factors to be reached.

Investors believe that the hawkish rhetoric of the Federal Reserve (Fed) is to blame for falling gold prices. Bets on the interest rates cuts by the Fed in March dropped to 42.4% from 73.0% at the start of the last week. De-escalation in the Middle East could another significant factor contributing to the decline of the yellow metal prices. A significant correction in stocks could also contribute strongly to the decline, as investors would be forced to sell gold to cover their positions in stocks.

Meanwhile, the Israeli-Palestinian conflict is trying to expand into a regional war. A correction in the U.S. stock market is more possible after the S&P 500 broad market index posted a series of new highs, and the Fed is trying to cool down expectations of swift monetary easing. Investors do not believe in Fed’s intentions to continue with high-interest rates beyond May so far, but everything may change rapidly. Bloomberg Intelligence Senior Commodity Strategist Mike McGlone sees that the U.S. economy could enter a recession in 2024. The Fed is unlikely to lower interest rates with ease amid stubborn inflation. A recession is usually coming in the first quarter since it is a rather weak period for the economy. The U.S. Administration is likely to do everything it can to support the economy during Q2 2024 to present solid economic data just before the Presidential elections to keep Joe Biden in the office.

From a technical perspective, there are some early signals of a possible 5-7% correction in the U.S. stock market during the next couple of months. Additional fears may unwind it to a larger downturn.