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After rallying sharply on Monday, gold got another shot in the arm during the first half of Tuesday’s session. As well as a weaker US dollar, a drop in equity prices also helped to boost the appeal of the safe haven metal. This week’s mild risk off tone and weakness in bonds and the dollar all suggest that the recent burst of optimism—largely driven by a few US trade concessions—may already be running out of steam. Monday saw the S&P 500 bring an end to its nine-day winning streak, the longest such run in nearly two decades. Several companies have delivered cautionary note as a reminder that the full impact of the ongoing tariff spat is likely to make itself felt in the months ahead. With stocks easing back, gold is again shining brightly. The question now is, can it make a new all-time high above $3,500?  At time of writing, it was a good $120 away from that area, representing a 3.5% gap. The metal has already risen some 5.5% from its weakest point last week. So, momentum is certainly strong.
 

What factors could hold gold back?

The price of gold, which had been on the defensive since topping out near $3,500 a fortnight ago, is finding its footing once again – and quite impressively so. The sharp recovery comes after the stock markets stopped going higher. And with gold’s bearish traders wary of not overstepping the mark because of the fact the long term trend has been very strong, it is likely that short covering has also aided this latest squeeze higher in the precious metal. But with safe-haven demand softening a little in the last several weeks, owing to hopes for a trade deal between the US and its trading partners, prices could ease back once more if there are any agreements announced this week. However, it is unlikely there will be any deals with China any time soon, and that uncertainty could keep gold’s downside potential limited.
 

FOMC rate decision looming

The FOMC is widely expected to leave the fed funds rate unchanged at 4.25–4.50% on Wednesday, despite Chairman Powell coming under intense criticism from Powell to trim rates. While rate cuts are still anticipated at the following FOMC gathering on 18 June, the current bias is towards pausing to take stock of recent events. Policymakers are likely to use this meeting to highlight the Fed’s independence and assess elevated tariffs and their pass-through to inflation. While the US dollar index could find some strength if Powell is more hawkish than expected, the upside potential could be limited given the investors distain towards US assets lately. All told, gold is unlikely to move sharply on the back of this particular fed meeting.
 

Gold technical analysis

As before, the technical outlook on gold remains positive until such a time we are seeing lower lows and lower highs. The recent two-week consolidation helped to unwind some of the overbought condition on gold’s momentum indicators such as the RSI, allowing dip buyers to step back in as prices tested key support levels.

With the renewed buying interest causing a few short term resistance levels to break and still looking strong, I wouldn’t rule out the possibility of gold seeing new highs. That said, there are a couple of interim resistance levels to watch out for that may trigger at least some profit taking.

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Key levels to watch

The next round handle of $3400 level is sandwiched between the 61.8% (at $3386) and 78.6% (at $3436) Fibonacci retracement levels against the all-time high of $3500. These levels mat trigger some profit-taking, should we get there.

On the downside, there are lots of support levels now that must break before the bears could have another go at exerting real pressure. Until that happens, this group of market participants must remain patient, especially in this type of market environment.

The first important level of short-term support is now seen around $3,370, followed by Monday’s high of $3,337. Below that, you have support at $3,300 and then $3,269.

Longer-term support levels include $3,167, $3,100 and finally $3,000-$3,020 area.

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