Gold Prices Decline as Investors Lighten Up on Safe-Haven Assets

Key Takeaways

• Investors are lightening up their positions in safe-haven assets
• Gold prices declined on Monday due to improvement in investor sentiment
• A US economic recession may cause gold prices to resume their climb

Overview

Gold prices remained mostly flat on Tuesday as rising Treasury yields and a weaker US Dollar kept movement in check.

Investors have lightened up their long positions in safe-haven assets like gold, Treasury Bonds, and the US Dollar due to easing concerns over a banking crisis.

This squaring process has disrupted the traditional relationship between yields, greenbacks, and gold.

At 08:34 GMT, June Comex gold is trading $1970.10, down $1.40 or 0.07%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $181.91, down $1.74 or -0.95%.

Gold Prices Decline Due to Regulator Reassurance and Profit-Taking

Gold prices declined on Monday due to a recent improvement in investor sentiment after regulators attempted to reassure markets about the global banking system.

This caused a slowdown in the flow of funds into safe-haven assets like gold. However, the decline in gold prices was limited by a pullback in the value of the US Dollar.

Some profit-taking has also occurred in the gold market as prices recently reached the $2,000 level. Additionally, hopes for a resolution to the banking crisis have led to significant position-squaring in gold.

Despite these developments, gold remains a resolute safe-haven asset in a rolling risk environment for the banking sector, as the risks of contagion are more persistent than the market anticipates.

Investors are also keeping a close eye on the US Federal Reserve’s interest rate strategy. While the markets are pricing in a 51% chance of the Fed keeping interest rates unchanged in May, higher interest rates increase the opportunity cost of holding gold, which has a zero-yield.

In the near term, gold may face challenges in breaking through to new highs, but a recession in the US economy is likely to cause the Federal Reserve to cut interest rates, causing bond yields to fall and gold prices to resume their climb.

Daily June Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $1953.70 will change the main trend to down. A move through $2031.70 will signal a resumption of the uptrend.

The nearest resistance is a minor retracement zone at $1992.70 – $2001.90. The market is currently testing minor support at $1968.90. If the main trend changes to down then look for a test of the short-term retracement zone at $1931.00 to $1907.20.

Daily June Comex Gold Technical Forecast

Trader reaction to the minor pivot at $1968.90 is likely to determine the direction of the June Comex gold futures contract on Tuesday.

Bullish Scenario

A sustained move over $1968.90 will indicate the return of buyers. This could trigger an intraday surge into $1992.70 – $2001.90. Overcoming the later will indicate the buying is getting stronger with $2023.90 and $2031.70 the next targets.

Bearish Scenario

A sustained move under $1968.90 will signal the presence of sellers. This could trigger a break into the main bottom at $1953.70.

Taking out $1953.70 will change the main trend to down with $1931.00 to $1907.20 the next key objective.