FX.co ★ Gold prices tumble - how much can they fall?

Gold prices have retreated on Wednesday once again, unable to resist the stronger US dollar. It is unclear when the downtrend could end.

The US dollar index jumped by 0.9% yesterday, reaching a new 20-year high of 104.80. As a result, precious metal prices tumbled.

June gold futures lost 1.6% or almost $30, closing at a 3-month low of $1,824.60 in the worst performance for the precious metal since May 2.

July silver futures dropped by 3.7%, reaching $20.773.

Precious metals have suffered losses despite a massive sell-off in the global stock markets, as traders shift from risky assets to USD amid anxiety over a global economic slowdown.

Among signs of looming recession are supply chain disruptions caused by lockdowns in major Chinese cities and Western sanctions against Russia.

Hawkish Fed policy is also giving support to USD. Last week, the regulator hiked interest rates by 0.5% for the first time since 2000.

According to the CME's Fed Watch Tool, the market is currently pricing in a 93% probability of a 50 basis point hike in June and a 90% probability in July.

The Federal Reserve could also increase the interest rate by 75 basis points at one of its next meetings.

This extreme hike could happen if inflation remains high in May. Rising wages due to the tight labor market is likely to push up inflation in the US.

According to the latest data, US price growth has slowed down slightly to 8.3% year-over-year, compared to 8.5% in March. However, inflation remains at a record-high level.

The US government believes that it could ease high inflationary pressure without triggering a recession, which also increases demand for USD as a safe haven asset.

In the meantime, precious metals are losing their attractiveness to investors as defensive assets.

Gold has petered its gains following the rally after the Russian invasion of Ukraine in February. The escalation of the conflict has pushed prices to record high levels in mid-March.

The asset has lost 3.1% since Monday, in the worst performance for the precious metal over the past 2 months. Gold is set to post a 4th straight week of losses.

On the technical side, gold is likely to test $1,780 in the near future after dropping below the support at $1,835.

If the bearish trend in the markets increases, it could lead to intraday losses by $100 for gold. A breakout below the key level of $1,800 could lead to such a sell-off.