When I wrote my last analysis on May 4, 2023, gold bugs were not prepared to believe that gold prices were about to take a breather. However, that day marked the initial sign of an impending rapid decline.
On May 5, the daily candle formed by gold futures confirmed this steep fall, following the exhaustive candle formed on May 4. As a result, the price continued to slide throughout the week.
Gold futures made efforts to defend the initial support at $2002 until May 15, trading in a narrow range amid fears of a surge in debt concerns. However, on May 16, an increase in selling pressure led to a breakdown below the 18 DMA, which stood at $2014 on that day.
Since then, gold futures have been attempting to defend the immediate support at $1958, while lawmakers struggled to reach a breakthrough in debt ceiling talks. This situation has raised concerns about a potential U.S. default for the first time in over four decades.
House Speaker Kevin McCarthy stated that he and President Joe Biden remained "far apart" on some issues, hindering progress in the agreement to raise the debt ceiling. However, McCarthy expressed hope for advancements in talks during a meeting on Wednesday.
The impasse on a debt ceiling agreement brings the U.S. dangerously close to its first default since 1979. Treasury Secretary Janet Yellen has previously warned that the U.S. could run out of money by June 1.
Worries about a default have negatively impacted investor sentiment, overshadowing indications that the Fed may pause rate hikes in June.
Technically, the daily chart reveals weakness with the formation of a bearish crossover as the 9 DMA crossed below the 18 DMA. Gold futures are currently trading below the 9 DMA, suggesting that a steeper decline is likely if the significant support at $1947 is not held.
On the weekly chart, gold futures have formed four consecutive bearish weekly candles since the beginning of the month. Trading below the 9 DMA indicates increasing selling pressure below $1992.
If gold futures fail to defend the significant support at the 18 DMA, currently at $1040, by the end of this week, panic selling could ensue next week. In that case, gold bears may target the next significant support at the 200 DMA, which currently stands at $1776.
Disclaimer: The author of this analysis may or may not have any position in the Gold futures. Readers can take any long or short trading position at their own risk.