Gold Outlook: Price stabilises?

Gold’s price seems to be edging lower since last week’s report, hitting a ceiling at the all-time high level of $2195 per ounce , yet it’s still too early to judge whether the bulls gave up and the bears took over. Today we are to discuss the fundamental challenges laid ahead for the precious metal, while we will be concluding this report with a technical analysis of gold’s daily chart. 

Gold, USD and US Yields

Since our last report, gold’s price edged lower while on the other hand the USD clearly strengthened against its counterparts. The movement of the two trading instruments, tends to highlight their negative correlation as the market perceives it, albeit at some points the negative correlation eases, or even is not expressed by the market. Yet in the past week the release of the US CPI and PPI rates for February on Tuesday and Thursday respectively underscored the negative correlation of gold and the USD.

The release tended to highlight the persistence of inflationary pressures in the US economy providing support for the USD which in turn weighed on gold’s price. Similarly, we also note the substantial rise of US yields since our last report which may have been an additional factor weighing on gold’s price, as they may have made US bonds a more attractive alternative to gold as an investment, given that gold bears no interest

The Fed’s interest rate decision

We expect the next big test for gold’s price is expected to be the release of the Fed’s interest rate decision tomorrow. The bank is expected to remain on hold, keeping rates at the 5.25-5.50% range. Currently, Fed Fund Futures (FFF) imply a probability of 99% probability for such a scenario to materialise, rendering the interest rate decision largely as an open and shut case.

Hence we may see the market attention turning to the accompanying statement, the new dot plot and Fed Chairman Powell’s press conference, half an hour later, in an effort to find more clues about the bank’s intentions. We should note that FFF also imply that the market, currently, expects the bank to start cutting rates in June and deliver 3 rate cuts in total.

From the gold trader’s approach, we have to keep in mind the negative correlation of the USD with Gold, as explained before. Hence anything that could support the USD, it could also have a negative impact on gold’s price. Should we break down the three prementioned remaining elements, we note that should the accompanying statement and Fed Chairman Powell’s press conference, be characterised by a hawkish tone, contradicting market expectations, we may see the USD getting some support and thus exercising a bearish pressure on gold’s price, while should the bank allow for some innuendos that rate cuts are nearing we may see USD weakening and gold getting some support.

On the other hand, should the dot plot reaffirm the market’s expectations for a total of three rate cuts in the year, we may see gold’s price rising, while should the dot plot imply fewer rate cuts, possibly two, we may see gold weakening as the USD may get asymmetric support.

Regional tensions continue to support gold’s price

On a deeper fundamental level, we note that uncertainty on a global level, is still pretty substantial. Issues like tensions with Russia, the war in Ukraine, Houthi rebels and the Israeli conflict with the Palestinians in Gaza, continue to create worries in the market. Any further escalation of tensions on an international level, could create demand for gold as a safe haven thus supporting its price.      

Gold: Technical Analysis

XAUUSD Daily Chart

• Support: 2135 (S1), 2080 (S2), 1990 (S3)
• Resistance: 2195 (R1), 2250 (R2), 2310 (R3)

After our last report, gold’s price seems to continue to edge lower yet largely remains in the corridor set by the 2135 (S1) support line and the 2195 (R1) resistance level. Overall the price action seems to have stabilised as any bullish outbreaks have been limited over the past week, and the bearish tendencies despite being there are still unconvincing.

We note that the RSI indicator has dropped below the reading of 70, implying that the bullishness of the market has eased, yet at the same time is still at high levels, highlighting the presence of the bullish element in the market sentiment. At the same time, we note that the price action through its stabilisation has allowed for some room to be created between itself and the upper Bollinger band, which may allow for some leeway for the bulls. Hence, for the time being, we tend to maintain a bias for the sideways motion to continue until the market decides for the direction of the price action’s next leg. 

Should the bulls take over, we may see the precious metal’s price action breaking the 2195 (R1) resistance line which is an all-time high level for the precious metal, with the next possible target for the bulls being set at 2250 (R2) resistance level. Should on the other hand the bears be in charge of the precious metal’s direction, we may see its price action breaching the 2135 (S1) support line and take aim of the 2080 (S2) support  base.              

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.

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