On Wednesday morning, the gold market did not start very well. The price of gold began to decline against the background of yesterday's data on the US economy.
Precious metals weakened due to the strong US dollar. The greenback shows confidence and surges against major currencies. The reason for this lies in the fact that the inflation risks for the US economy remain but the inflation rate is decreasing, though not as much as analysts previously said.
Gold futures for April on the electronic trading floor in New York this morning were down 0.39%, or $7.2, forcing them to move to $1,858.2. Support for the precious metal is located in the range of $1,846.2, and resistance went to the area of $1,884.6.
Silver futures for March fell by 0.74% to the level of $21.71.
Futures contracts on copper with delivery in March dropped by 0.57%. Their current level is consolidating in the range of $4.07 per pound.
This morning, gold eventually dropped after hovering for the past few days. The downtrend has resumed below $1,850. The bearish sentiment appears. If the bullion declines below the level of $1,825, it will likely continue to fall deeper.
Today, it becomes clear that the market is extremely vulnerable. There are not many factors for growth, and the main ones are against gold. At the same time, the precious metal is struggling to prevent a sharper decline.
On Wednesday, the level of $1,838 is crucial for the precious metal. If it is broken through, we may see a reduction in positions. Bulls will finally take the upper hand and bring the price to the area of $1,825, the yearly low.
On the other hand, if the resistance level will be able to remain within $1,860, bulls may take control of the market and drag the price up to the next important level of $1,870.
Meanwhile, the Open Interest Gold Futures Index continues to show growth, albeit not very significant. The total trading volume of the precious metal is also increasing, which is also a good sign. Some experts do not share the positive sentiment, speaking about the inevitability of a drop in the precious metal's price. In particular, it is hinted at by the weakening interest in gold, which makes it extremely vulnerable, and this opens the way to a reduction to the level of $1,800. All of these prospects are real.
The US national currency is the reason why the gold market is under pressure. This morning, the US dollar index showed a strong increase. The greenback increased against a basket of six major currencies by 0.16% to 103.4 points. This was a signal for traders, who began to act riskier and refrained from protective assets, including gold. The pressure on the market is also connected with the fact that the strengthened US dollar makes gold less available for foreign currency holders.
The greenback strengthened after the publication of the US economic reports, which turned out to be not so devastating. US inflation slowed down in January 2023. It was able to reach 6.4%. In the previous period, it consolidated at 6.5%. The reduction is not too large, most analysts hoped to see a figure of 6.2%. However, even that is enough to assess the sustainability of the US economy. The consumer price level in the country, on the other hand, became higher by 0.5%.
Notably, US authorities have been trying to bring inflation to the 2% target for two years, making every possible effort to do so. They did not succeed as much as expected but even a weak slowdown could force the Fed to keep the key rates at a higher level for another period, which is contrary to market expectations.
For the US currency, this background becomes a great time to build up positions, which has a negative impact on gold. Meanwhile, it is still unclear how to weather this crisis.