Gold Spots (XAUUSD) continued their upward trajectory, reaching $2,019.50 an ounce, driven by a weaker US dollar and escalating tensions in the Middle East. On the one hand, safe-haven buying bolstered demand amid the ongoing geopolitical tensions in the Middle East. Additionally, weaker-than-expected US retail sales data and dovish comments from some Fed officials rekindled expectations of potential rate cuts later this year, boosting gold’s appeal as a non-interest-bearing asset.
However, these tailwinds are countered by headwinds. Recent inflation data, including higher-than-expected Producer Price Index figures, suggests the Fed might maintain its hawkish stance, dampening hopes for near-term rate cuts. The dollar’s slight retreat provided temporary relief, but a sustained appreciation could pressure gold prices due to its inverse relationship.
Technical Analysis:
The 4-hour chart shows that the price action trades around the $2,017.74/ounce price level, hovering above the 38.20% Fibonacci retracement level. Price action recently broke above the 20-SMA (green line) and 50-SMA (blue line) but trades below the 100-SMA (red line), indicating a mixed trend. RSI sits above 50, suggesting some upside potential, but its flatness indicates indecision.
The immediate price action around the 50.00% Fibonacci level ($2,034.41/ounce) will be crucial. A sustained break above could see further gains towards the 61.80% Fibonacci level ($2,034.41/ounce) and potentially the 78.60% Fibonacci level ($2,048.05/ounce). Conversely, a break below the 38.20% Fibonacci level could trigger short-term trading opportunities towards the 23.60% Fibonacci level ($2,003.40/ounce) and even the $1,984.24/ounce support zone.
Summary
Gold’s price action is caught in a tug-of-war. While bullish factors like geopolitical tensions and a weaker dollar provide some support, the shifting Fed narrative and persistent dollar strength pose significant headwinds. Technically, the price action sits in a critical zone between key support and resistance, with a break above $2,034.41 needed for a sustained rally and a break below $2,003.40, signalling a potential downside.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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