Gold reaches new record high yet bulls hesitate

Gold’s price moved decisively higher in the last few days, reaching a new record high, even for a brief period of time. Today we are to discuss the fundamental challenges laid ahead for the precious metal as well as upcoming financial releases that may affect the direction of its price action. Finally, we will be concluding this report with a technical analysis of gold’s daily chart. 

The Fed’s intentions

After the release of a slightly cooler inflation report for April from the US, Gold’s price was allowed to rise as market expectations for the Fed to start cutting rates rather earlier than later seemed to intensify, which in turn weighed on the USD and thus provided support for Gold’s price. Hence, a big factor affecting gold’s price would be the Fed’s intentions. It’s characteristic that Atlanta Fed President Bostic stated that he expects inflation to keep cooling, which was considered as an element that intensified the possibility of earlier rate cuts. On the flip side, though, he also stated that it’s going to be a while before the Fed is certain that inflation is headed back to 2% yoy. Furthermore, we highlight the release of the Fed’s last meeting minutes tomorrow in the late American session on Wednesday. Should the document show that the bank still remains uncertain on whether inflation is returning to its target and is prepared to maintain rates at high levels for longer, we may see gold’s price retreating.

Middle East remains a source of worries

The crash of the helicopter carrying Iranian President Ebrahim Raisi and his subsequent death on Sunday was a painful reminder of how the Middle East remains a focal point of tensions and market worries. The overall incident at the beginning was shrouded and it was characteristic that rumours began to spread for foul play. The news gave gold’s price some moderate support on Monday’s opening as the precious metal seemed to be receiving safe-haven inflows, until it was verified in the late European session that the crash was an accident, causing gold’s price to deflate and end the day with very slight gains. Yet the situation in the Middle East remains tense, especially given the dire situation of Palestinians in the Gaza Stripe and the possibility of a humanitarian disaster being present. We continue to view the situation in the wider Middle East region as a possible factor that could boost gold’s price, as it could raise uncertainty in the markets exponentially should tensions escalate. 

USD’s negative correlation with gold’s price

It seems that the negative correlation of the USD to gold’s price was once again present in the past week, as the USD index retreated while gold’s price benefited. It should be noted that even the relevant inactivity of the USD tends to allow gold’s price to rise a bit. We expect the negative correlation of the two trading instruments to be present in the coming week as well. Hence, we note that any US-triggered financial releases that could move the USD could also have an effect on gold’s price, yet in the opposite direction. Also, we note that since our last report, US yields despite a roller coaster ride, seem to land a bit lower. Gold’s price as a non-interest-bearing safe-haven trading instrument is also sensitive to US yields, given its antagonistic relationship with US Bonds. Hence, should we see US yields dropping lower, we may see the appeal of the shiny metal being polished and its price getting a boost. 

تجزیه و تحلیل فنی

XAUUSD Daily Chart

• Support: 2335 (S1), 2280 (S2), 2222 (S3)
• Resistance: 2430 (R1), 2500 (R2), 2575 (R3)

On a technical level, gold’s price moved higher since our last report and briefly broke its all-time high level at the 2430 (R1) resistance line, yet quickly returned below it. Overall, though the bullish tendencies are still present as the upward trendline guiding the precious metal’s price since the 9  of May remains intact, gold’s price action has been respecting the boundaries of the upward channel it has been moving in since the 14  of February, and the RSI is below yet quite close to the reading of 70, implying a rather bullish predisposition of market participants for the shiny metal.

On the other hand, gold’s price corrected lower yesterday after hitting the upper Bollinger band, and overall, it seems to have difficulties breaking decisively the 2430 (R1) resistance line. Hence, we tend to maintain our bullish outlook while at the same time issuing a warning for a possible stabilisation of the precious metal’s price. For the bullish outlook to be maintained, we would require gold’s price to break the 2430 (R1) resistance line, which would bring it into uncharted waters, with the next possible target for the bulls being set at the 2500 (R2) round figure.

Gold bears have started to warn of a possible double-top formation being in the works, which would imply a bearish outlook ahead, yet we reject this as premature at this stage. For a bearish outlook, the bar is high, and we would require gold’s price to drop, break the prementioned upward trendline in a first signal that the upward motion is interrupted, break the lower boundary of the upward channel guiding it, break the 2355 (S1) support line, and actively aim, if not breach, the 2290 (S2) support line.

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