GOLD Price Analysis – Aug 21, 2024
Daily Price Outlook
Gold (XAU/USD) struggled to sustain its upward momentum, falling to around $2,507 after an intraday low of $2,504.55.
The price initially surged to a new all-time high on Tuesday, fueled by a dovish Federal Reserve stance and selling pressure on the US dollar. Additionally, geopolitical tensions enhanced gold’s appeal as a safe-haven asset.
However, optimism for a ceasefire in Gaza and a modest rebound in the US dollar from its lowest level since January pressured gold prices and limited further gains.
Traders are exercising caution ahead of today's release of the July FOMC meeting minutes and Fed Chair Jerome Powell's upcoming speech at the Jackson Hole Symposium on Friday.
Both events are expected to provide crucial insights into future monetary policy directions and will be closely scrutinized by the market.
US Rate Cut Expectations and Overbought Conditions Impact Gold Prices
On the US front, expectations that the Federal Reserve (Fed) will start cutting interest rates in September have significantly boosted gold prices.
Many investors anticipate a 25 basis point (bps) rate reduction during the September meeting, which would pressure US Treasury bond yields and the US dollar. This sentiment led gold to reach a new record high on Tuesday.
Despite this dovish stance, gold has since started to lose ground. According to the CME Group's FedWatch Tool, markets are currently pricing in a 70% probability of the rate cut.
Additionally, a Reuters poll indicates that a slim majority of economists now anticipate the Federal Reserve will cut rates by 25 basis points at each of the remaining three meetings in 2024, surpassing previous predictions.
However, Fed Governor Michelle Bowman has warned that inflation remains above the Fed's 2% target, aiming to temper expectations for any immediate rate cuts.
Meanwhile, according to TD Securities, the gold market is extremely overbought, as shown by futures and options market positioning data.
Macro fund positioning is already consistent with 370 bps of cuts, and further returns might be limited by this frothy positioning. Shanghai trader positioning has also reverted to record highs, and Commodity Trading Advisors (CTAs) are holding onto their 'max long.'
This suggests that while gold has surged, the upside potential may be limited due to overbought conditions.
Geopolitical Tensions in the Middle East Boost Gold Demand
On the geopolitical front, ongoing tensions in the Middle East, especially between Israel and Hamas, are keeping investors cautious and bolstering gold prices.
The conflict has led to significant casualties, including at least 52 Palestinians killed in recent Israeli strikes.
These tragic incidents have occurred at a Gaza City school and a crowded market in Deir el-Balah, contributing to the heightened demand for gold as a safe-haven asset.
Meanwhile, U.S. Secretary of State Antony Blinken has called for a ceasefire in Gaza, but his Middle East tour concluded without an agreement between Israel and Hamas.
The ongoing conflict has resulted in heavy casualties, with over 40,000 people killed in Gaza and more than 1,100 in Israel since October 7. These severe geopolitical concerns are driving increased demand for gold as a safe-haven asset.
GOLD (XAU/USD) - Technical Analysis
Gold is currently trading at $2,513.440, down slightly by 0.03%. The 4-hour chart shows that the precious metal is facing immediate resistance at $2,526.46, with additional resistance levels at $2,540.75 and $2,556.71.
On the downside, key support levels are found at $2,491.41, $2,480.08, and $2,461.80.
The Relative Strength Index (RSI) is holding at 60, which suggests that while gold is not yet overbought, it still has room for upward movement.
The 50-day Exponential Moving Average (EMA) is positioned at $2,471.9390, further supporting a bullish outlook as long as the price stays above this level.
Gold has recently been trading within a tight range, but with the pivot point set at $2,526.19, breaking above this level could signal a continuation of the bullish trend.
The recent small decline suggests some consolidation, but with the broader trend still intact, there’s a good chance that gold could resume its upward trajectory, especially if it holds above the $2,507 level.
Conclusion: Buy above $2,507 with a take profit target at $2,526 and a stop loss at $2,495.
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