Technical Analysis

GOLD Price Analysis – Jan 09, 2024

By LonghornFX Technical Analysis
Jan 9, 20244 min

Daily Price Outlook

Gold prices (XAU/USD) extended their upward trajectory, gaining positive momentum above $2,030 during the Asian session on Tuesday. The surge in gold prices can be attributed to a decline in US Consumer Inflation Expectations, fueling market expectations that the Federal Reserve (Fed) might initiate interest rate cuts as early as March. This has kept US Dollar (USD) bulls on the defensive for the second consecutive day, proving advantageous for the non-yielding yellow metal. Additionally, a positive trading sentiment in Asian equity markets has been a limiting factor for gold price gains.

Gold's Prospects Amidst Lower Short-Term Inflation Expectations and Resilient US Economy

It is worth noting that the report from the New York Federal Reserve indicates that US consumers expect lower inflation in the short term, resulting in a weakened US Dollar and benefiting Gold. However, predictions for inflation a year from now have hit a three-year low, suggesting a potential shift in the Federal Reserve's stance. Despite this, investors are cautious about expecting significant policy changes, considering the resilient nature of the US economy.

Atlanta Fed President Raphael Bostic thinks inflation dropped more than expected, suggesting two small interest rate cuts by the end of 2024. Fed Governor Michelle Bowman, however, feels the current policy is strict enough. She sees a chance for steady inflation but also acknowledges some risks. The uncertainty about the Fed making early interest rate cuts is keeping the yield on the 10-year US government bond above 4.0%. This might limit Gold's rise since Gold doesn't earn interest.

Hence, the New York Fed's report on lower short-term inflation expectations weakens the US Dollar, providing support for Gold. However, cautious optimism persists due to the resilience of the US economy, which could potentially limit the upward movement of Gold.

Asian Market Sentiment and US Inflation Data: Impact on Gold Prices

Furthermore, the global market sentiment has been improving, with things looking positive for the day. However, if positive sentiment continues in the stock markets, it may continue to exert pressure on the safe-haven gold (XAU/USD). Traders might adopt a cautious approach, refraining from bold moves and choosing to observe developments, especially with the upcoming release of the latest US consumer inflation data on Thursday. Meanwhile, the outcomes of this data will be crucial in interpreting the potential future policy decisions of the Federal Reserve.

Therefore, the ongoing positivity in Asian markets could exert downward pressure on gold, with traders holding back ahead of Thursday's release of US inflation data. The results will play a key role in influencing the Federal Reserve's decisions, shaping the dynamics of the USD and consequently impacting gold prices.

GOLD Price Chart - Source: Tradingview
GOLD Price Chart - Source: Tradingview

GOLD (XAU/USD) - Technical Analysis

As of Tuesday, January 9, Gold has seen a modest uptick in its price, currently trading at $2,033, marking a 0.26% increase over the last 24 hours. This slight rise in the yellow metal's value suggests a cautious optimism among investors.

Gold's current trajectory is framed by several critical technical levels. The pivot point stands at $1,995, serving as a baseline for potential movements. On the upside, immediate resistance is encountered at $2,021, with further barriers at $2,050 and $2,076. Should a reversal occur, Gold may find support at $1,967, followed by stronger levels at $1,938 and $1,909.

The Relative Strength Index (RSI) for Gold is at 43, indicating neither overbought nor oversold conditions, but a bearish sentiment. Meanwhile, the Moving Average Convergence Divergence (MACD) is at -0.1160, with a signal line of -6.71800. This divergence suggests a potential for downward momentum. The price of Gold hovers around the 50-Day Exponential Moving Average (EMA) of $2,032, indicating a neutral to bearish trend in the short term.

A critical observation in the chart patterns is the formation of a symmetrical triangle with a breakout at $2,035, accompanied by bearish candlestick patterns. This formation typically suggests a potential downtrend, urging caution among investors.

Considering the current market conditions and technical analysis, the overall trend for Gold appears to be neutral to bearish. The advised trading strategy would be to consider a sell position below the 2036 mark, with a take-profit target at 2015 and a stop-loss order at 2047. Investors should closely monitor these levels and adjust their strategies accordingly as market dynamics evolve.

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