GOLD Price Analysis – July 25, 2024

Daily Price Outlook

Gold prices (XAU/USD) failed to stop their previous session's downward rally and remained well offered around $2,375, hitting an intraday low of $2,365. This downward trend can be attributed to technical selling, as it experiences a predicted downward movement within its trading range.

Meanwhile, the slightly positive US S&P Global PMI data for July reduced fears of "stagflation" (a weak economy with high inflation), leading to a decline in gold prices as the improved economic outlook made gold less attractive as a safe-haven asset.

In contrast, increasing expectations that the Federal Reserve (Fed) will cut interest rates multiple times before the year's end helped gold prices limit their deeper losses. Looking ahead, traders are waiting for more US economic data to gauge future interest rates.

Key reports include the Q2 GDP growth data on Thursday and the PCE Price Index for June on Friday. These reports will provide insights into the economy and inflation.

Gold Prices Decline Amid Positive Economic Outlook and Rising Production Costs

On the US front, the recent S&P Global PMI data for July was slightly positive, easing worries about a weak economy with high inflation (stagflation). Chris Williamson from S&P Global described the situation as a "Goldilocks" scenario, where the economy is growing well and inflation is under control.

However, higher costs for materials, shipping, and labor could lead to increased prices or lower profit margins.

Despite expectations that the Federal Reserve will cut interest rates, gold prices are falling because the improved economic outlook and rising production costs are overshadowing these expectations.

On the data front, the preliminary S&P Global Composite PMI improved to 55 in July from 54.8 in June, showing overall economic growth.

However, the S&P Global Manufacturing PMI dropped to 49.5 from 51.6, indicating a slowdown in manufacturing, while the Services PMI rose to 56.0 from 55.3, reflecting stronger growth in services.

Despite a positive economic outlook and expectations of lower interest rates, Gold prices are falling. This is due to rising production costs and a slowdown in manufacturing overshadowing the benefits of rate cuts.

Gold Prices Set to Gain from Lower US Bond Yields, Reduced Import Tax in India, and Geopolitical Shifts

On the other hand, the unwinding of the "Trump trade" has lowered US bond yields, which benefits gold prices. Polls show Democrat Kamala Harris leading over former President Trump, potentially signaling a less inflationary economy if she wins.

Moreover, India's reduction of its gold import tax from 15% to 6% is expected to boost physical gold demand.

Furthermore, gold might benefit from geopolitical factors, especially if BRICS+ nations succeed in creating a gold-backed alternative to the US dollar as the world's reserve currency, reducing US influence through dollar-based sanctions.

Gold prices are likely to benefit from lower US bond yields, reduced Gold import tax in India, and potential geopolitical shifts if BRICS+ nations establish a Gold-backed reserve currency.

GOLD (XAU/USD) - Technical Analysis

Gold (XAU/USD) experienced a modest decline of 0.92%, settling at $2,373.915 on the four-hour chart. This recent move sees the precious metal navigating key technical levels that traders are closely monitoring.

As the price action unfolds, it becomes essential to understand the pivotal areas of support and resistance that could influence the next directional shift.

The pivot point, currently at $2,379.70, serves as a crucial marker. Gold's immediate resistance stands at $2,401.34, a break above which could propel prices toward the next resistance levels of $2,421.78 and $2,451.44.

Conversely, the downside is guarded by immediate support at $2,357.25. Further declines may find stabilization at subsequent support levels of $2,339.62 and $2,319.18, which are critical for maintaining the bullish sentiment in the medium term.

Technical indicators present a mixed scenario. The Relative Strength Index (RSI) is positioned at 30, indicating that Gold might be entering oversold territory. This could suggest a potential reversal or a period of consolidation in the near term.

Additionally, the 50-day Exponential Moving Average (EMA) is at $2,424.48, highlighting a bearish trend as the current price remains below this average. Traders should remain cautious, as a sustained move below the 50 EMA often signals continued downward momentum.

In conclusion, traders are advised to consider short positions below $2,380, targeting $2,350 for profit-taking, with a stop loss set at $2,395.

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