Gold prices has continued its decline by approximately $50. Will it drop further?

Summary: Gold has witnessed consecutive plunges for two days, with gold spot plummeting by $50 on Thursday, closing below $2330 per ounce. This followed a previous day's sharp drop of $42. Strong U.S. economic data, driving up U.S. Treasury yields and the dollar, has been the primary catalyst for the gold sell-off.


The S&P Global manufacturing, services, and composite PMI preliminary figures for May indicate an acceleration in U.S. business activity. The composite PMI surged to 54.4 in May, marking its highest level since April 2022.

Another set of data reveals that initial jobless claims in the U.S. fell to 215,000 last week, marking the largest two-week decline since September last year. A robust labor market continues to support the economy, signaling strength in the labor market.

Additionally, minutes from the FOMC on Wednesday indicate officials still believe inflation pressures will gradually ease over the coming months. However, they express doubts about whether current interest rate levels are sufficiently restrictive. Several officials have indicated willingness to support raising borrowing costs if inflation surges, signaling a potential for rate hikes when necessary. This is an unfavorable factor for gold.

How to trade gold after consecutive plunges?

In the short term, momentum has turned negative. The RSI confirms this, having dipped below the 50 midpoint, indicating dominance by gold sellers at lower levels.

On the downside, support for gold lies at the May 8th low of $2303 per ounce. Once breached, the 50-day Simple Moving Average (SMA) at $2307 per ounce becomes the next bearish target.

On the other hand, if bulls manage to push prices back above $2350 per ounce, the $2400 per ounce level could become a target for bulls. Only a successful stabilization above the $2400 level can drive gold prices further upward, retesting this year's high of $2450 per ounce.

(Gold 1day chart)

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