by Tiaan van Aswegen, market analyst at Trive Financial
In the run-up to the interest rate decisions of various central banks, the SPDR Gold Trust (NYSE Arca: GLD) was uncertain. On the one hand, strong US data has led to a cautious bias, while the yellow metal’s safe havens underpin upside potential as the market becomes more risk-averse ahead of interest rate decisions. Which side will prevail at the end of the week?
The CME FedWatch Tool predicts a pause in the Federal Reserve’s (Fed) rate hike cycle with a 99% probability, leaving the market vulnerable to a negative surprise should the Fed respond to last week’s robust data. The inflation rate was above consensus estimate at 3.7%, followed by positive retail sales and PPI of 1.6% year-on-year, up from the previous 0.8% and beating the consensus estimate of 1.2%. Nevertheless, the probability that interest rates will remain at current levels until November is currently 73%, significantly higher than a week ago (58%).
The ETF has gained 5.13% year-to-date, benefiting primarily from the sharp decline in US Treasury yields in March as market sentiment changed about the Fed’s possible interest rate path due to the banking sector crisis. Until the sudden reversal and recovery in two- and 10-year U.S. Treasury yields in May as the market returned to normality, safe-haven gold posted good gains. Since then, returns have increased significantly, putting pressure on the ETF’s upside potential. However, with expectations of a possible end to the Fed’s rate hike path, yields could soon reverse and support a recovery in gold prices if market fundamentals support this view.
Source: Trive – Koyfin, Tiaan van Aswegen
Technical analysis
On the 1D chart, it looked like the breakout from the descending channel would be successful, but solid resistance finally stopped the uptrend at $180.94. The presence of sellers forced the price to retest the breakout level and as the 25-SMA (green line) falls below the 50-SMA (blue line), the bearish momentum could continue.
If the price manages to break the 50-SMA at $179.27, upside potential could emerge that could entice buyers to retest the $180.94 level. A rise above this psychological resistance could confirm bullish momentum, with higher resistances at $182.55 and $183.82.
However, if the price fails to break the 50 SMA, the support at $177.62 and the daily pivot point at $176.97 could come into play. From there, the price could continue to trend lower, especially if the Fed surprises the market with a rate hike, which could push the price towards $175.09 and $173.90.
Summary
As risk aversion increases ahead of this week’s Fed and Bank of England interest rate decisions, the SPDR Gold Trust could benefit from its safe-haven appeal early in the week. Clearing the 50-SMA at $179.27 could initiate an uptrend, with resistance at $180.94 acting as a psychological resistance level that must be overcome to establish a sustainable uptrend.
Sources: Koyfin, Tradingview
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