GOLD Price Analysis – Aug 05, 2024
Daily Price Outlook
Despite multiple supportive factors like a bearish US dollar and risk-off market sentiment, the gold price (XAU/USD) failed to sustain its early-day upward trend and remained well offered around the 2,421 level, hitting an intraday low of 2,414.
The precious metal faced selling pressure as profit booking kicked in while attempting to recapture all-time highs above $2,480.
However, the losses could be short-lived as the Fed is expected to cut interest rates by more than 100 basis points this year. This undermined the US dollar and helped the gold price stay bid. Additionally, rising tensions in the Middle East are likely to boost safe-haven assets like gold.
Weaker US Economic Data and Rate Cut Expectations Boost Gold Prices
On the US front, the broad-based US dollar struggled to gain momentum and remained under pressure due to the Federal Open Market Committee's dovish stance and a weaker employment report.
According to the CME FedWatch tool, traders expect a 50-basis point (bp) interest rate cut in September and anticipate a reduction of more than 100 bps this year.
This expectation stems from recent weak US economic data, which suggest an economic slowdown and raise doubts about the Fed achieving a "soft landing," where inflation is controlled without causing a recession.
However, the deteriorating labor market and a sharp slowdown in the manufacturing sector have increased hopes for significant rate cuts. The July Nonfarm Payrolls (NFP) report highlighted a slowdown in labor demand and an unexpected rise in the unemployment rate to its highest level since November 2021.
On the data front, US Nonfarm Payrolls increased by 114,000 in July, falling short of the 175,000 expected and down from 179,000 in June.
The unemployment rate rose to 4.3%, the highest since November 2021, and Average Hourly Earnings grew by just 0.2%, below the 0.3% forecast.
Meanwhile, the ISM Manufacturing Purchasing Managers Index (PMI) showed a faster contraction in manufacturing activity, dropping to 46.8 in July. These figures indicate weaker-than-expected labor market conditions and economic activity.
Therefore, the weaker US economic data and increased rate cut expectations have bolstered gold prices, as investors seek safe-haven assets amidst economic uncertainty and potential Fed policy adjustments.
Geopolitical Tensions in the Middle East Boost Gold Prices
Another factor that helps gold stay bid is the rising tensions in the Middle East. US Secretary of State Antony Blinken has warned that Iran and Hezbollah might soon attack Israel, prompting President Joe Biden to meet with the National Security Council.
Israel is considering a preemptive strike on Iran, and Hezbollah has vowed to escalate attacks following the killing of a senior commander.
Hence, the situation is further strained by the assassination of a Hamas leader and ongoing clashes between Hezbollah and Israeli forces. These geopolitical tensions, along with a weaker US dollar and lower bond yields, are likely to support gold prices.
GOLD (XAU/USD) - Technical Analysis
Gold (XAU/USD) is currently trading at $2,443.92, reflecting a modest increase of 0.05% as investors continue to navigate economic uncertainties.
The metal has maintained a positive trajectory amid geopolitical tensions and a softer U.S. dollar, making it an attractive safe-haven asset.
The 4-hour chart suggests that gold is trading above the pivot point at $2,425.34, indicating a bullish bias as long as prices remain above this level.
The technical landscape reveals that gold is facing immediate resistance at $2,459.16. If the price manages to break through this level, further resistance can be expected at $2,478.38 and $2,499.25.
On the downside, immediate support is seen at $2,404.34, followed by additional support levels at $2,377.99 and $2,353.43.
The Relative Strength Index (RSI) is neutral at 51, indicating that the market is neither overbought nor oversold, and leaving room for further movement in either direction.
The 50-day Exponential Moving Average (EMA) is positioned at $2,432.19, providing a dynamic support level that aligns with the current market sentiment.
A sustained move above this EMA could further reinforce the bullish outlook for gold. Investors might consider entering long positions if gold dips below $2,425, with a target of $2,455 and a stop-loss at $2,405 to mitigate risk.
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