Gold prices (XAUUSD) are buoyed by renewed optimism around potential interest rate cuts from the Federal Reserve later in 2024. This follows weaker-than-expected US job growth data released on Friday, which reinforces expectations of a dovish shift by the Fed. Geopolitical tensions in the Middle East, with the ongoing conflict between Israel and Hamas, are also adding to the safe-haven appeal of gold. The Perth Mint reported a significant jump in gold sales in April, indicating increased physical demand.
However, some headwinds remain. Recent data suggests sluggish physical demand in India, a key gold-consuming nation. Additionally, gold faces headwinds as the US dollar remains relatively strong.
Technical Analysis
The 4-hour chart shows that gold is currently trading at $2,318.20/ounce, attempting to recover after closing the previous two weeks in the red. The price action is currently above the 50-SMA (blue line) and around the 20-SMA (green line) but remains below the 100-SMA (orange line).
The upward-sloping RSI (54.77) recently broke above the 50 level, indicating a potential shift in momentum. A sustained push above the 38.20% Fibonacci retracement level ($2,322.45/ounce) could see gold target the 23.60% Fibonacci retracement level ($2,364.12/ounce). Overcoming this resistance could even bring the all-time high of $2,431.47/ounce into play.
Conversely, failing to hold above the 20-SMA could trigger a retracement towards the 50.00% Fibonacci retracement level ($2,288.77/ounce). A significant break below this level, coupled with high volume, could strengthen the bearish momentum. In this scenario, the 61.80% Fibonacci extension level ($2,255.10/ounce) and the 78.60% Fibonacci extension level ($2,207.15/ounce) could become targets.
Summary
Market sentiment around gold is cautiously optimistic. The prospect of Fed easing and ongoing geopolitical tensions are supportive factors. However, a wait-and-see approach prevails as investors await further data and cues from the Fed. Technically, a confirmed breakout above the 38.20% Fibonacci retracement level could signal a bullish resurgence. Conversely, a breakdown below the 50.00% Fibonacci retracement level could indicate a short-term correction.
Sources: TradingView, Trading Economics, Reuters, MarketWatch.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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