The past week has seen an undeniable trend in the financial markets, one that has sent ripples through commodity assets, particularly gold, silver, and base metalsA notable decline has been recorded as the expectation for a soft landing in the U.Seconomy gains tractionThis sentiment has exerted substantial pressure on international gold prices, which have tumbled from their historic zenith around $2080, now hovering close to the $1950 markThis downturn has raised questions and expectations about what the future may hold for precious metals.

Despite the current sluggish state of these markets, experts maintain a bullish outlook on gold in the long runThe prevailing belief is that as global monetary policy is likely to loosen gradually from this point forward, there are still promising prospects for gold's valueRecent manufacturing PMI data from Europe has underscored concerns regarding economic growth, signaling that the rhetoric surrounding "higher for longer" interest rates may soon become outdated

However, in the short term, gold may need to navigate through a period of consolidation due to the recent strengthening of the U.Sdollar.

As the dollar strengthens, it places added pressure on all dollar-denominated metals like goldThe dollar index has rebounded from recent lows around 100 to hit levels of 104, which is significantSince the correlation between the dollar and gold has been negative and nearly 90% since last year, the recent surge of the dollar has inevitably impacted gold pricesOn May 19, for instance, the dollar index surpassed the crucial threshold of 103, with traders eyeing the March high of 105.88 as the next potential targetSimultaneously, the number of initial jobless claims in the U.Ssaw a large decrease to 242,000, the largest drop since 2021, further fueling speculation about the Federal Reserve's stance on interest rates for June—a meeting at which a pause previously seemed consensus.

In addition, progress in debt ceiling negotiations has contributed to gold's short-term decline

Just recently, Fitch Ratings placed the U.SAAA long-term currency issuer default rating on negative watch, signaling a possible downgradeNevertheless, late on the same day, indications emerged that the negotiations surrounding the debt ceiling would likely reach a resolution soon, quelling fears of default to minimal probabilityAccording to reliable sources close to the negotiations, the ultimate agreement may not be a long, intricate document but rather a streamlined pact with key figures on discretionary spending caps, including military expenditures.

Interestingly, throughout the last few months, investors seem not to perceive default as a tangible risk any longerThis shift in sentiment has been pivotal for market dynamicsFollowing a series of factors including rising bond yields, the attractiveness of non-yielding assets like gold and silver has diminished considerablyAs of the latest trading week, U.S

Treasuries faced continued pressure, leading to eight consecutive days of decline in their pricesThis phenomenon supports the yields, thereby bolstering the dollar while simultaneously applying downward pressure on precious metalsBy Friday, the yield on the benchmark 10-year Treasury rose sharply to about 3.8%, a notable increase from its sub-3.4% level during the banking crisis, a period during which gold price had initially surged—a trend that seems to have since lost momentum.

The sustainability of this dollar rebound appears to be critical moving forwardKey factors that have historically suppressed the dollar, such as concerns of sovereign default, easing pressures, and recession risks, are gradually being alleviatedKeeping an eye on these evolving conditions is crucial, but in the short term, the dollar is likely to maintain its strengthAs we immerse ourselves in the current trends, it seems fair to assert a bearish outlook in the short term

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Gold prices are currently testing significant support levels.

For the bulls in the gold market, this has been a disheartening phaseThe inability of gold to hold its ground above historic highs established earlier this month has raised alarmsEach time bullish candlesticks appeared, traders promptly engaged in selling due to the Fed's hawkish stance, which has driven bond yields higherUnless there is a macroeconomic backdrop that favors gold or is detrimental to the dollar, gold will likely remain under pressure.

Gold is currently testing its first critical support level, just below $1960, previously established as a resistance zoneIf this support holds, a climb back above the resistance level of $1980 might bring newfound confidence to the bullsIt is worth noting that if prices dip below the $1960 mark cleanly, it could reinforce a bearish sentiment, as experienced recently when prices dropped to around $1950. In this scenario, a further decline could bring gold down to about $1925, where long-term bullish trendlines may afford some support.

Given the prevailing bearish trend, any rebounds from these levels should be approached cautiously, as they might present selling opportunities rather than sustained upward movements

Until we observe a distinct bullish reversal signal, caution is advised for those in the bullish camp.

Looking beyond the short-term volatility, the long-term forecast for gold remains optimisticGlobal monetary policies are expected to gradually ease, and central banks around the world are still in an accumulation trend, which bodes well for gold as a strategic assetVaried central banks, including those in developed countries, have bolstered their reserve holdings, with the World Gold Council reporting that various official reserves added a record 228 tons of gold in the first quarter of this year.

Several central banks have ramped up their purchases, with notable contributions from institutions such as the central bank of Singapore, which increased its holdings by 68 tons, and China, which added 58 tonsChina’s central bank has consistently raised its reserves for six consecutive months

As of April 2023, China’s official gold reserves stood at 66.76 million ounces, compared to 66.50 million ounces at the end of MarchOther countries such as Turkey and India are also on the list of growing reserves, alongside the European Central Bank.

As economies hover on the edge of recession, gold’s role as a long-term strategic asset is being emphasized more than everHistorical trends show that in the seven previous recessions, gold investments yielded positive returns in five instancesAs we entered 2023, volatility stemming from the risks in the banking sector has magnified, and governmental purchases of gold underscore its significance within international reserve portfolios.

Despite the recent fluctuations in the metals market, the global economic indicators remain precariousIf we observe persistent weakness in manufacturing PMIs and steep risks indicating potential downturns in economic activity, the attention investors afford gold could increase appreciably