Gold Outlook: Ρetraces from all-time highs

Gold’s price moved decisively lower , since our last report, after reaching a new record high.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

Last week, Gold’s price was seemingly 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. However, that narrative appears to have changed following the release of the Fed’s April meeting minutes.

The FOMC’s last meeting minutes, tended to highlight a predisposition by policymakers to maintain interest rates higher for longer. In particular, policymakers highlight that “Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected implying that the Fed may keep rates higher for longer in order to ensure inflation returns to the bank’s 2% inflation target.

The implications of maintaining interest rates higher for longer, appear to have provided support for the dollar, whilst weighing on the precious metal’s price given their inverse relationship with one another. However, the real test for gold traders, may be the release of the US Core PCE rates for April on Friday, which are the Fed’s favourite tool for measuring inflationary pressures.

Should the rates imply a persistent or even an acceleration of inflation in the US economy, it could force the Fed’s hand to maintain current interest rates thus supporting the dollar, whilst weighing on the precious metal’s price and vice versa.

Middle East remains a source of worries

The latest development in the Middle East, is the recent clashes between Israeli and Egyptian forces on the Rafah border crossing between Egypt and the Gaza strip. The clashes occurred on Monday, where according to various reports, an exchange of fire occurred between Israeli and Egyptian personnel, resulting in the death of an Egyptian soldier.

According to Reuters, which is citing Egyptian Security forces, the incident occurred after “an Egyptian soldier stationed on a watchtower had reacted to seeing an armoured vehicle carrying Israeli troops cross a boundary line near the border, while soldiers pursued and killed several Palestinians”.

The incident has resulted to heightened tensions between the two nations, all though it has not resulted in an Egyptian military retaliation yet. Thus, the situation appears to be confined for now, yet that could quickly change. Therefore, should hostilities rise between Israel and Egypt, it could further increase the regional instability, which in turn could funnel safe haven inflows into gold, given its status as a hedge during times of uncertainty.

On the flip side, should the matter be resolved diplomatically, with no further escalation from either side, it could result to safe haven outflows from the precious metal, which may weigh on gold’s price. Nonetheless, the situation may warrant further attention during the week, should new developments occur.

기술적 분석

XAUUSD Daily Chart

• Support: 2335 (S1), 2280 (S2), 2222 (S3)
• Resistance: 2380 (R1), 2430 (R2), 2575 (R3)

On a technical level, gold’s price appears to have moved lower since forming its new all-time high figure at $2449, last Monday. Overall though the bullish tendencies that were guiding the precious metal, appear to have faded away, with the precious metal having retraced back to our 2335 (S1) support level.

We maintain a sideways bias for the precious metal’s price and supporting our case is the RSI indicator below our chart which currently registers a figure near 50, implying a neutral market sentiment. For our sideways bias to continue, we would require the precious metal to remain confined within the sideways moving channel defined by the 2335 (S1) support line and the 2380 (R1) resistance level.

On the flip side, for a bearish outlook we would require a clear break below the 2335 (S1) support level, with the next possible target for the bears being the 2280 (S2) support line. Lastly, for a bullish outlook we would require a clear break above the 2380 (R1) resistance line with the next possible target for the bulls being the 2430 (R2) resistance level.

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