Gold Gains Substantial Ground This Week As Investors Focus on the Economy

Weekly Gold Prices and Technical Evaluation

Gold prices ended the day and week with gains that were substantial. Gold futures based most active June contract is now up $3.90 or 0.21 percent at $1845.10 as of 5:50 PM ET. Considering that gold futures traded as low as $1785 this week and as high as $1848.60 this week, gold had a successful week.

Before this week's trading action resulted in definable technical chart damage with gold breaching below its 200-day moving average on May 12, gold prices had been under pressure for four straight weeks. This week's low was reached on Monday, May 16 when gold prices touched $1785, moved as high as $1825 before ending above Monday's beginning price and Friday's closing price of $1813.60. On Tuesday, gold reached a higher high and a higher low than it did on Monday, although closing slightly below its beginning price. On Wednesday, gold reached a lower low and a lower high compared to Tuesday's price action, but on Thursday, this trend reversed.

Gold's beginning price on Thursday was $1816 and its closing price was $1841, which is above its 200-day moving average of $1837. Although gold had a little increase today, it began and finished above its 200-day moving average, which is notable from a technical standpoint. If gold can sustain a price over $1837 on a technical basis, we may conclude that gold prices have returned to a robust long-term bullish disposition.

Fundamentals

This week's recovery in gold was due to a shift in market sentiment away from the Federal Reserve's recent and future activities in regards to their tightening monetary policy, in which they raised the Fed funds rate by 0.5 percentage points at this month's FOMC meeting, following the quarter-point rate hike they implemented in March.

Chairman Powell's recent assertions that he is willing to hiking rates well above the Federal Reserve's interest rate objective for normalization, which has been set at about 2 percent, imply that they will become more aggressive. This was regarded as a more aggressive monetary policy in an effort to stem the rising tide of inflation.

The Federal Reserve's statements prior to this week indicated that they believe inflationary pressures had peaked, and the most recent CPI inflation index data from last month validates this view. The CPI index for April came in at 8.3 percent, below the rate of 8.5 percent recorded in March.

The tightening of the Federal Reserve's monetary policy has caused in a massive selloff in U.S. equities, which continues into this week, sending all three major indexes into a defined spiral with seven weeks of price drops.

However, gold has declined for four consecutive trading weeks in expectation of much higher interest rates to combat inflation. This week, however, we have witnessed a clear and defined reversal of market sentiment, as investors are now clearly focused on the reality that inflation has not peaked and is most likely continuing to rise, and the prolonged risk-off market sentiment has shifted market sentiment from the higher yields of U.S. Treasuries to the safe-haven asset, gold.