Technical Analysis

GOLD Price Analysis – March 12, 2024

By LonghornFX Technical Analysis
Mar 12, 20244 min

Daily Price Outlook

Despite the bearish US dollar, the gold price (XAU/USD) failed to extend its previous nine-day upward rally and lost some of its traction around the $2,174 level. However, the reason for its downward trend can be attributed to the ongoing cautious sentiment in the market ahead of latest US consumer inflation figures. Investors are awaiting this data for more clues about the Federal Reserve's (Fed) rate-cut path before placing fresh directional bets. In contrast to this, the increasing acceptance that the US central bank will cut its key interest rate at the June policy meeting leads to a further decline in the US dollar, which may help the gold price to limit its losing streak.

Impact of Fed Comments and CPI Report on USD and Gold Prices

On the US front, the broad-based US dollar has been showing bearish performance, struggling to regain strength. This could be attributed to previously released mixed data, increasing speculation of a Fed rate cut in June. Powell suggested that rates might be lowered later in the year if inflation remains around 2%. On the previously released data front, a spike in the US unemployment rate suggested a possible change in the Federal Reserve's policy.

After a mixed US jobs report, more people expect the Federal Reserve to lower interest rates. This has caused the yield on the 10-year US government bond to drop to a five-week low near 4.0%. Traders now think there's a 70% chance of a rate cut by June, which is making people who support the US dollar more careful and is helping gold prices.

On the upcoming data front, the crucial US CPI report is expected to influence expectations about the Federal Reserve's rate cuts, boosting XAU/USD. The headline CPI is predicted to rise to 0.4% in February, with the yearly rate staying at 3.1%. Meanwhile, the Core CPI is forecasted to ease to a 3.7% YoY rate from the previous 3.9%.

However, Fed Chair Jerome Powell, in his recent testimony, indicated that high inflation might delay any rate cuts. If the upcoming US CPI data shows high inflation, the Fed may signal fewer rate cuts, leading to a drop in gold prices. Conversely, a lower CPI reading could suggest an early rate cut, boosting gold prices. This data is likely to create volatility and short-term trading opportunities for gold.

Therefore, the speculation of a Fed rate cut and comments from Powell have weakened the USD, boosting gold prices. Traders are now pricing in a 70% chance of a rate cut by June, supporting gold further.

Market Sentiment and Gold Price Stability Ahead of CPI Data

On the other hand, the risk-off market sentiment limited additional losses in gold prices. Investors awaited key U.S. Consumer Price Index data, expected to influence the Federal Reserve's interest rate cut plans in 2024. On the geopolitical front, there were reports of Israeli forces attacking people seeking aid in Gaza, causing injuries or deaths. Meanwhile, the World Health Organization provided aid to al-Shifa Hospital in Gaza, which is facing shortages. Furthermore, Israel also carried out strikes near Lebanon's Baalbek.

Hence, the geopolitical tensions, including Israeli attacks in Gaza and strikes near Lebanon, alongside restrictions at Al-Aqsa Mosque, heighten investor concerns, boosting the safe-haven appeal of gold.

Gold Price Chart - Source: Tradingview
Gold Price Chart - Source: Tradingview

GOLD (XAU/USD) - Technical Analysis

Gold's performance on March 12 exhibited a mild decline, with the price dropping to $2176.425, marking a 0.29% decrease. This subtle shift in value places the precious metal in a precarious position as it navigates the volatile markets. The four-hour chart indicates that the pivot point stands at $2196.42, suggesting a critical juncture for future price movements. Notably, gold seems to be grappling with resistance levels at $2227.22, $2251.98, and $2277.02, which could hinder its upward trajectory. Conversely, support levels at $2156.18, $2130.57, and $2111.27 provide a cushion, potentially halting further declines.

The Relative Strength Index (RSI) reads at 66, indicating that gold is teetering on the edge of the overbought zone. This positioning suggests caution, as prices could be prone to a reversal if investors decide to lock in profits. Moreover, the 50-day Exponential Moving Average (EMA) at $2132.845 reinforces the bullish undertone observed over recent sessions, yet the current price movement hints at potential selling pressure below the $2195 level.

Considering these dynamics, the overall trend for gold leans towards a cautious outlook. Investors are advised to consider a selling strategy below $2185, targeting a take profit at $2130, with a stop loss set at $2215. This approach aligns with the observed resistance and suggests that, despite gold's resilience, market sentiment may pivot towards bearish tendencies in the short term.

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