Gold Prices Slump on US Data ahead of Powell’s Testimony, Key Support in Peril

GOLD PRICES OUTLOOK:

• Gold prices sink on Tuesday, weighed by strong U.S. economic data ahead of Powell’s Congressional testimony
• The Fed Chair will deliver his Semiannual Monetary Policy Report to Congress on Wednesday and Thursday
• This article looks at gold futures’ key technical levels to watch in the coming days

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Gold futures sank on Tuesday, down about 1.3% to $1,945 in late morning trading, pressured by U.S. dollar strength ahead of Powell’s Congressional hearings, with the greenback boosted by remarkably strong May housing starts and building permits data released earlier in the morning (see table below)

The resilient performance of the U.S. economy could convince Wall Street that the Fed will resume raising borrowing costs in the second half of 2023, in line with its recent guidance. Policymakers held interest rates steady last week, but signaled 50 basis points of additional tightening through the end of the year, but traders seemed skeptical of those plans initially.

US ECONOMIC DATA TODAY

Source: DailyFX Economic Calendar

Traders were also cautious prior to the Fed Chair’s Congressional hearings later in the week. Powell will appear before the U.S. House Financial Services Committee on Wednesday and the Senate Committee on Banking, Housing, and Urban Affairs on Thursday to deliver the central bank’s Semiannual Monetary Policy Report, a document that can offer important insight into the outlook.

Little has changed since the June FOMC meeting, so Powell is likely to reiterate that the fight against inflation is not over and that further tightening may be warranted to curb sticky price pressures. A hawkish speech could push yields and interest rate expectations higher, boosting the U.S. dollar and hurting precious metals. Against this backdrop, gold’s path of least resistance may be lower.

GOLD FUTURES TECHNICAL ANALYSIS

Gold’s technical outlook has turned less constructive after prices breached a key trendline that has guided the market higher since late 2022. This breakdown has reinforced downward pressure, leading the metal to fall towards multi-month lows near $1,940, an important support level to monitor in the near term.

Looking ahead, traders should keep a close eye on gold’s reaction around $1,940. If XAU/USD manages to establish a base around those levels and begins to rebound, initial resistance extends from $1,970 to $1,980, followed by $2,000. On further strength, the focus shifts to $2,050.

On the other hand, if sellers take out the $1,940 support, the underlying bias could turn quite bearish. This scenario could trigger a pullback towards $1,905, the 38.2% Fibonacci of the November 2022/May 2023 retracement. After that, the next area of interest sits at $1,880.

GOLD FUTURES TECHNICAL CHART

Gold Futures Chart Prepared Using TradingView