(Kitco News) - Investors turned their back on gold this week amid heightened speculation that central bankers will pull the trigger on a rate hike at the June 14-15 Federal Reserve meeting.
Is a June rate hike baked in the cake already, or did jittery markets overreact and get it wrong?
Gold prices are preparing to end the week in negative territory, with June Comex gold futures last trading at $1.250.60 an ounce, down 1.8% on the week.
"Data-dependent" remains a key phase gold traders should consider going forward. "The minutes of the April FOMC meeting struck a more hawkish tone, but financial markets may be misinterpreting them," says Ryan Sweet, managing director at Moody's Analytics.
A June rate hike isn’t guaranteed, Sweet says. "Things could change between now and the June meeting, but we believe members will heavily debate raising rates without, however, following through and will opt to wait until July."
[Editor's note: Does it really matter anyway to gold long-term if the Fed hikes rate in June? Maybe not.Read the story here ]
Key Factors For Gold Next Week:
Yellen's Speech May 27Watch for potentially market moving headlines and comments from Fed Chair Janet Yellen at Radcliffe Day as she accepts the Radcliffe Medal. She will also participate in a panel discussion at 10:30 am Eastern in Cambridge, Massachusetts.
G-7 Meeting: Impact on the DollarGold and precious metals markets could be sensitive to whipsaw reactions in the U.S. dollar as statements emerge from the G-7 confab. Why this matters?Gold trades with an inverse relationship to the dollar and weakness in the greenback could prove gold supportive.
"The G-7 meeting could definitely have a significant impact on trading in gold and other currencies next week," says Colin Cieszynski, chief market strategist, CMC Markets.
Watch for comments on: "Whether easy money moves are being undertaken for stimulus reasons or to devalue currencies. Japan has been the focus with the potential for more easing to come to the Bank of Japan. Whether the meeting ends in agreement or acrimony could influence trading in gold," Cieszynski says.
Inflation: Pay Attention To Crude OilCan crude oil top the $50 barrel level and hold above there? That could trigger renewed CPI inflation concerns and provide support to gold.
Data watch: The next installment of the Fed's preferred inflation gauge – the PCE Price Index – is slated for release on May 31. Mark your calendar: Trading impact could be high.
Trading Levels: Bearish Outside Week In Gold
Overbought conditions and a recent failed breakout from the triangle pattern on the daily chart argue for short-term weakness in gold.
The June Comex gold contract is forming a "bearish outside week" in midday action Friday = negative technical signal for next week.
June Comex Gold is trading below its 20-day moving average at $1,270.10 = negative short-term signal
"Next week gold could remain under pressure. I don't think gold or bonds have completed adjusting to a more hawkish Fed or the prospects of a June rate hike. I think a retest of $1228 Fibonacci support remains possible in a correction," Cieszynski says.
Key support points and potential bearish targets:
$1,228.50, $1,225.40, $1,210.30, $1,207.70
Look for: Potential bargain hunters to emerge in the $1,210-1,207 zone (major support). See Figure 1 below.
Key resistance: the 20-day moving average is first resistance. A rebound above that zone would be a positive S/T signal. Next bullish targets at $1,290.40 and then a major ceiling: $1,306.
The Big Picture
Heard on the Street:
"Over the long run, I'm still bullish on gold. A helicopter money policy is inevitable starting in Japan next year, then in the euro zone in 2018." – Henry To, CB Capital Partners
"Investors are seeing the truth behind our so-called recovery, which is that it's just not a recovery. They are acknowledging the signs that we may be on the brink of an even greater collapse, despite the words coming from media pundits, government stuffed shirts, and the Federal Reserve. And in the face of deranged markets, the draw of gold is clear." - Dawn Bennett, founder and CEO of Bennett Group Financial Services.