By Barani Krishnan
Investing.com -- One week — that’s all it took for gold’s $2,000 highs to melt.
In Monday’s session, an ounce of the yellow metal on New York’s Comex was back to trading in $1,800 territory.
This came as the dollar flew on expectations the Federal Reserve would adopt a 50-basis point, or half percentage point, hike at its May policy meeting next week — double the 25 bps, or quarter point, approved in March in the first pandemic-era U.S. rate increase.
Comex’s front-month gold futures for June settled down $38.30, or 2%, at $1,896 an ounce on Monday. On April 18, June gold hit a six-week high of $2,003 on concerns that the United States could run into recession from aggressive Fed actions to control inflation. Gold typically acts as a hedge against economic and political troubles.
A succession of Fed speakers had soothed some market worries over the past week that the economy could turn negative from the central bank’s attempts to put a lid on price pressures growing at their fastest pace in 40 years.
While fears of a hard landing for the economy have not entirely evaporated, optimism, especially over the sterling labor market, has won over some pessimists. That has sent the dollar — the chief beneficiary of a rate hike — rallying instead, making gold and other safe-havens suffer.
In Monday’s session, the Dollar Index, which pits the U.S. currency against six major rivals, hit a 25-month high of 101.745.
U.S. bond yields, which often run side-by-side with the dollar, have decoupled lately from the greenback. The yield on the U.S. 10-year Treasury note declined for the third day in a row, losing almost 4% on the day.
While risk aversion across the board had scalped stocks to safe-havens, gold's near-term charts indicated the potential for a rebound to $1,900 lows at least, after the drop of more than $100 on the week. said Sunil Kumar Dixit, chief technical strategist at skcharting.com.
"Gold has begun showing oversold signs on its daily chart, which may cause some short-term relief rally, though not necessarily a reversal," Dixit said, "The $1,925 to $1,935 level continues to be a challenge but short of that, a rebound is possible. If history is anything to go by, gold is likely to find buyers at lower levels."
On the flip side, a Comex settlement below $1,888 will add to gold's woes, he said.