Gold prices (XAUUSD) surged to record highs earlier this week, fueled by hopes of imminent interest rate cuts from the Federal Reserve. Data showing a slowdown in US consumer inflation for April bolstered these expectations, with markets currently pricing in around 41 basis points of cuts by year-end. However, the rally stalled after cautious remarks from Fed officials like Vice Chairs Jefferson and Barr. They emphasized the need for more time to assess inflation’s trajectory and the effectiveness of current policy. This hawkish tilt from the Fed dampened hopes for a swift easing cycle, putting pressure on gold prices.
Adding to the uncertainty is the ongoing geopolitical tension surrounding the news of the Iranian President Raisi. This event underscores gold’s safe-haven appeal, potentially providing some support despite the Fed’s stance.
Technical Analysis
The 4-hour chart reveals a tug-of-war between bulls and bears. The price of gold is currently trading slightly lower at $2,414.67/ounce, having retreated from its record peak. The bulls hold a slight upper hand, with the price action situated above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line).
With the RSI (56.54) trading above the 50.00 level, a recovery and a push higher could offer short-term trading opportunities towards the all-time high of $2,450.04/ounce. A sustained push above the initial resistance would likely bring the 23.60% Fibonacci extension level ($2,484.49/ounce) and 38.20% Fibonacci extension level ($2,505.81/ounce) within the bulls’ clutches in the short term.
However, the bears remain vigilant. A breach below the 20-SMA could trigger a retracement towards the 23.60% Fibonacci retracement level at $2,380.90/ounce. A sustained breakdown below this support zone with significant volume could see a further decline towards the 38.20% Fibonacci retracement level ($2,338.13/ounce) and even the 50.00% level ($2,230.37/ounce).
Summary
Gold’s record run may have hit a snag. Despite the technical uptrend remaining intact, the retreat from record highs and cautious Fed commentary raise questions about the sustainability of the rally. Technically, a break above the all-time high could open the door for further gains. Conversely, a breakdown below the 20-SMA could signal a bearish reversal.
Sources: TradingView, Trading Economics, Reuters, Money Control.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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