Gold is Reconfiguring Itself for a Correction toward $2100

Gold prices rose by 0.5% to $2344 per troy ounce this week, lifting off from the support at $2300-2320 in an effort to reach the resistance at $2400. Prices have tried twice to break through this resistance in the past three months, first in April and then in May, but both attempts were unsuccessful.

On May 20, gold prices established a new all-time high at $2450 per ounce before quickly retracing to $2290. This movement appears to be forming a correctional “head and shoulders” pattern, with the left shoulder in April and the head in May. If prices attempt another breakthrough in June, a potential rollback to $2300 per ounce could finalize the pattern and significantly increase bearish sentiment.

To consider going short, traders need a breach and likely retest of the “neckline,” located close to the $2290-2300 support. If a proper breakthrough of this support is achieved, prices will likely continue down towards $2100 per ounce.

The SPDR Gold Trust (GLD) reported net fund outflows of $747.9 million last week, the highest since July 2022. Investors may be concerned about this downside perspective and the Federal Reserve's (Fed) hawkish stance. Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari reiterated this week that they foresee only one interest rate cut by the Fed in 2024 if U.S. inflation continues to slow, which is a hawkish enough stance to challenge gold prices rising to $2400 per ounce.

However, weak macroeconomic data in the U.S. and rising geopolitical tensions in the Middle East might provide the necessary support for gold prices to climb to this level. Investors will closely watch the manufacturing and services PMIs in the U.S. on Friday; if these indicators decline, it could support a rise in gold prices. Additionally, the potential for a ground military operation by Israel against Hezbollah in Lebanon adds to the geopolitical risk, creating further support for gold prices to approach $2400 per ounce.