Last week, the Gold Spot Price (XAUUSD) surged to unprecedented levels, reaching a new pinnacle of $2,222.68 per ounce. This surge followed the Federal Reserve’s announcement of its interest rate decision, which hinted at a dovish stance.
The Fed Dot Plot revealed the potential for three rate cuts within the year, prompting a surge in market expectations of a rate cut in June, with the probability soaring to 74%, up from 55% the previous week. Consequently, the allure of gold increased as the prospect of lower interest rates bolstered its appeal.
However, this surge was met with volatility, leading to a rapid downturn. The unexpected interest rate cut by the Swiss National Bank sparked speculation that other major central banks could adopt a more aggressive monetary easing approach sooner than the Federal Reserve. Consequently, the U.S. Dollar strengthened, resulting in a depreciation of other major currencies and commodities priced in dollars.
This week, all eyes are on the US PCE price index report, slated for release on Friday. This report serves as the Federal Reserve’s preferred gauge of inflation and will be closely monitored by markets. Traders will analyse the report to assess whether a rate cut in June is warranted based on inflationary trends.
Technical
The Gold Spot Price concluded the previous week with back-to-back days of declines. Nonetheless, its overall upward trajectory remains intact, as it continues to trade above the 100-day moving average despite experiencing a notable selloff.
Over the past fortnight, the Spot Price’s upward momentum slowed, accompanied by a decrease in upside volumes. This deceleration formed a falling wedge pattern, typically indicative of continuation patterns.
Following the recent interest rate decision, the spot price broke out above the boundaries of the falling wedge pattern, supported by significant increases in trading volume, thereby confirming the continuation pattern. This upward movement established a support level at $2146.08. However, reaching a peak at $2222.68 led to overbought RSI conditions, challenging further upward momentum. Subsequently, heightened selling pressures caused a sharp decline, leaving the $2222.68 level as a notable resistance level.
During this decline, the spot price breached key Fibonacci Retracement levels, notably the 61.80% Golden Ratio. A retest of the $2146.08 support level could occur if the downward momentum persists. Conversely, a resurgence in upward momentum may draw market interest towards the 50% Fibonacci level in the near term.
Summary
Despite reaching record highs, the Gold Spot Price faced volatility amid shifting market sentiments. While maintaining its overall upward trend above the 100-day moving average, it encountered resistance at $2222.68. With a potential retest of the $2146.08 support level, the market awaits cues from the US PCE price index report for further direction.
Sources: Reuters, Dow Jones Newswires, Trading Economics, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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