Gold price has drifted downwards in the past few days as the recent bullish momentum faded. The precious metal was trading at $1,940 on Monday, much lower than last month’s high of $2,010. It has retreated even as conditions for gold improved.
US consumer inflation aheadA case for investing in gold has continued emerging. The biggest reason is the fact that the cost of paying US government bonds has jumped sharply. According to Bloomberg, the estimated annualised interest payments soared past $1 trillion at the end of October.
The situation will worsen now that US public debt is surging. The most recent data shows that the total debt has jumped to over $33.7 trillion and the Treasury Department has warned that it will borrow an additional $1 trillion in the coming months.
Sadly, America’s political polarization has worsened, meaning that it will be unlikely that the debt load will start falling. Also, last week, the Treasury struggled to raise over $24 billion as investors demanded a higher interest rate.
Worse, the biggest buyers of America’s debt are not buying anymore. In fact, China, Saudi Arabia, and Japan are continuing to dump their holdings. All this explains why Moody’s downgraded the outlook for America’s debt last Friday.
BREAKING: Moody’s Investors Service Changes Outlook on United States Credit Rating from ‘Stable’ to ‘Negative’, Citing Risks to Fiscal Strength & Political Polarizationpic.twitter.com/NplIHqaxcf
— Chief Nerd (@TheChiefNerd) November 10, 2023The worsening situation is a dream come true for gold investors who have long warned about the fiscal situation in the United States. They believe that the Federal Reserve will be forced to print more money, which will fuel inflation.
Gold price has retreated as investors react to the rising hopes that inflation is falling. The headline Consumer Price Index (CPI) has dropped to 3.6% in October. And with the price of crude oil falling, analysts expect that the figure dropped to 3.1% in November. The US will publish its CPI data on Tuesday.
A key challenge for gold is that it is now competing with Bitcoin, which is back with a bang. Bitcoin, which is seen as a digital gold, has soared to over $37,000 from the year-to-date low of below $20,000. A spot Bitcoin ETF approval will likely lead to more inflows from institutional investors.
Gold price forecast
The daily chart shows that gold price has been under pressure in the past few days. It is now consolidating at the 50-day and 25-day Exponential Moving Averages (EMA). Most importantly, gold has formed an inverted head and shoulders (H&S) pattern. In price action analysis, this pattern points to more gains.
Therefore, the short-term outlook for gold is bearish, with the next point to watch being at $1,891, the right shoulder. It will then bounce back and move above the psychological level of $2,000. Such a move will then see it soar to the YTD high of $2,082, which is 7.65% higher than the current level.
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