June Comex Gold: Buyers Face Wall of Resistance from $1932.90 – $2003.00

Gold futures jumped on Friday as investors took advantage of a weaker U.S. Dollar. However, gains were likely capped by rising Treasury yields.

On the fundamental side, gold likely received some support from reports showing a contraction in the U.S. economy during the first quarter, and a strong inflation.

On Friday, June Comex gold futures settled at $1911.70, up $20.40 or +1.08%. Additionally, the SPDR Gold Shares ETF (GLD) finished at $176.91, down $0.02 or -0.01%.

Bullish Traders Eyeing Possible Stagflation Scenario

U.S. Gross Domestic Product (GDP) unexpectedly declined at a 1.4% annualized pace in the first quarter, marking an abrupt reversal for an economy coming off its best performance since 1984, the Commerce Department reported Thursday.

The weak GDP report was followed on Friday by government inflation data. Although the core PCE came in below the 5.3% forecast, including volatile food and energy prices, the PCE index accelerated by 6.6%, the fastest pace since January 1982.

The real problem for the economy showed up in the employment cost index, a separate inflation measure. It increased 1.4% in the first quarter from the previous period, according to the Bureau of Labor Statistics. The Dow Jones estimate for that level was 1.1%.

Fed On-Tap

Gold trader focus now shifts to the U.S. central bank’s two-day policy meeting starting on May 3, with officials expected to increase the target policy rate by half a percentage point.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is now trending higher following the confirmation of Thursday’s closing price reversal bottom.

A trade through $1870.90 will negate the closing price reversal bottom and signal a resumption of the downtrend. A move through $2003.00 will change the main trend to up.

Support is a long-term 50% level at $1908.10 and a short-term Fibonacci level at $1897.70.

On the upside, the nearest resistance is a short-term 50% level at $1932.90, a long-term Fibonacci level at $1958.70 and a short-term retracement zone at $1976.50 to $2001.40.

Short-Term Outlook

The daily closing price reversal bottom on Thursday did not change the main trend to up, but it did signal a shift in momentum. Furthermore, overcoming the long-term 50% level at $1908.10 is also a sign of strength. Nonetheless, buyers are still facing an uphill battle with potential resistance levels lined up at $1932.90 to $2003.00.

While buyers get to look forward to a labored rally, sellers have a much easier path to overcome. The daily chart indicate a move through $1870.90 could trigger an acceleration to the downside with potential targets coming in at $1824.40, $1791.60 and $1783.80.