Gold falls 3% on the week as mixed data raises questions

Gold fell almost 3% on the week as mixed data raised questions over whether the nascent US recession will deepen or whether the dollar will regain momentum as the Federal Reserve weighs more rate hikes.

The benchmark gold contract for December delivery on the New York Comex traded down $8.30, or 0.5%, at $1,762.90 an ounce on Friday. On a weekly basis, gold for December delivery lost about $53, or 2.9%. The spot price of gold bullion, which is more closely followed by some traders than futures, was at $1,747.68 at 15:40 BST (19:40 GMT), down 0.6% on the day and 3% on the week. "Gold is heading lower again as the dollar continues to see strong support," said Craig Erlam, analyst at online trading platform OANDA. "The resurgence in the dollar has weighed heavily on the yellow metal, which has already seen profit-taking after hitting $1,800." Until last week, a four-week rally had given both gold futures on New York's COMEX and the spot price of gold bullion a gain of about $120, or 7% from the July 21 low of $1,680. The yellow metal peaked at almost $1,825 on August 10. This came against a backdrop of softening inflation and other data suggesting that the Fed may be done with super-sized rate hikes, an idea that sent the dollar lower. But since the beginning of this week, the tide has turned, with US weekly employment figures, manufacturing and other data coming in stronger. On top of that, the dollar, gold's counter-trade, started to rise. On Friday, the Dollar Index, which pits the US currency against the euro and five other majors, also rose much more than crude oil, hitting a five-week high of 108.14. The downtrend for gold has begun. The question is how much lower it can go. Surprisingly, both chart signals and fundamental analysts' views suggest not much lower. This is due to the inflation dynamic, which is tied to the stronger US data that emerged last week. Gold remains a hedge against inflation for some of the most serious investors, although it has not been able to fully fulfill this characteristic since reaching record highs of over $2,100 in August 2020. That's why even chartists such as Sunil Kumar Dixit, chief technical strategist at SKCharting.com, think that gold is most likely to go to around $1,730 in this first round of weakness, and that a further break below $1,700 will only happen if the dollar rallies. "Rejection/selling pressure from the $1777-1781 resistance areas could push gold down towards $1,744 and $1,729, the 50% and 61.8% Fibonacci levels of the retracement from $1,681 to $1,808," Dixit said. On the flip side, there could also be a rebound if the yellow metal is considered oversold, he added: "In some respects, gold has reached oversold territory and is likely to stage a short-term rebound as the 13/9 stochastic readings on the 4-Hour chart have a positive overlap." "We could see prices retest the broken support resistance areas of $1,768 - $1,777 and the 50-Day Exponential Moving Average of $1781."