Gold Price Analysis: Bulls testing bearish commitments

• Gold starts the week on the bid while the greenback stays flat. 
• A busy week on the US calendar will be important for the summer months. 
• XAU/USD poised to extend slide after breaking key supports

At the time of writing, gold is trading on the bid in the open for the week, higher by 0.38% from the get-go at $1,781.64. The price of gold has rallied from a low of $1,773.79 and has reached a high of $1,790.44. 

Gold prices finished on Friday at $1,780.30 and 0.29% higher after moving up from a low of $1,773.80 and reaching a high of $1,790.37.

Meanwhile, the US dollar is flat in the open on Monday, stalling in its recovery from the pressure early on Friday following the miss in producer price inflation.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.5%, below economists’ expectations of an 0.6% increase. There is no runaway inflation in this report, which counters the Fed’s faster action, weighing on the greenback.

At the time of writing, DXY is trading at 91.81, a touch below the 91.838 Friday close. However, in the 12 months through May, the core PCE price index shot up 3.4%, the largest gain since April 1992.

Meanwhile, volatility levels are sinking fast again following a brief hiatus around the FOMC meeting although there could be another flurry for the week ahead due to critical US data.

Consumer confidence, ADP, ISM and Friday’s June Nonfarm Payrolls figure will be under the spotlight. A significant number, close to the one million mark, will be seeded to avert a low volatility summer.

Analysts at TD Securities explained that the start of the process of preparing the market for QE tapering has introduced an additional hawkish element to Fed policy expectations.

''The resulting sharp drop, which saw prices fall by some $100 to the $1,770s, and fear of a more pronounced rout also prompted money managers to build short positions. However, with the market reflecting on continued economic risks and yields remaining quite low, it is unlikely there will continue to be aggressive reductions in length.''

''Indeed, once the dust settles, gold should migrate well above $1,800/oz in the next months with investors likely increasing exposure in the yellow metal, the analysts added. 

Gold technical analysis

However, gold has failed to trade stronger into the $1800s and there is a lack of an immediate impetus to buy the yellow metal which puts the focus on the downside from a technical point of view.

Chart of the Week: Gold meets a critical landmark

A close below 1,772 and 4-hour support will be important and will put the 1,750’s on the map for the bears.