Gold price decreased for the fourth straight week by 3.77 percent – the second largest one-week drop of the year – to near a three-month low, as the strongest dollar in two decades dampened demand outlook for greenback-priced bullion.
Broad-based US dollar strength and a sharp upsurge witnessed in the Treasury bond yields kept non-yielding gold under pressure. The gold futures closed the week on a negative note in the international market at $1,812.20 from $1,883.10 per ounce, shedding $70.90 on a week-on-week basis.
The price of 10 grams of 24-carat yellow metal in Pakistan, meanwhile, decreased by 0.09 percent (Rs100) to Rs112,350 from Rs112,450 during the last week. A relatively lower decrease in the local gold prices was due to the Pakistani rupee’s depreciation against the US dollar, which devalued by 3.16 percent last week.
Overall, gold’s value has decreased by 8.34 percent or $165 per ounce during the last four weeks. A major factor pressuring gold prices lower has been the dollar’s strength. The dollar has gained value for the last six consecutive weeks. Over the last four trading weeks, the US dollar has gained 4.15 percent in value. This means that dollar strength accounted for just under one-half of gold’s price decline. Currently, the dollar index is fixed at 104.515 and the last time the dollar was so strong in the fourth quarter of 2002.
Last week, the US central bank increased its benchmark overnight interest rate by an aggressive half-a-percentage point. Bullion is sensitive to rising US short-term interest rates and bond yields, which raise the opportunity cost of holding it. Gold’s recent slide has wiped out most gains made in a rally driven by safe-haven demand in anticipation of and after Russia’s invasion of Ukraine in February. The conflict powered gold prices all the way to near-record levels in mid-March.
From a technical perspective, the fact that gold closed below the 200-day SMA during the last two straight days could be seen as a significant bearish development and cause buyers to remain on the side line in the near-term. The Relative Strength Index (RSI) indicator on the daily chart dropped to 30 for the first time since August following this week’s price action, suggesting that gold could stage a technical correction before the next leg lower.
On the upside, the 200-day SMA forms dynamic resistance at $1,840, which could be seen as a recovery target. As long as gold fails to make a daily close above that level; the bearish bias may stay intact. Next levels of resistance for week will be $1,860 and $1,880. On the flip side, $1,800 (psychological level and Friday’s low) is the first technical support ahead of $1,790 and $1,780, which was the January 28 low.
