Technical Analysis

Gold Price Analysis – May 06, 2024

By LonghornFX Technical Analysis
May 6, 20244 min

Daily Price Outlook

Despite the upbeat market sentiment, the safe-haven gold price (XAU/USD) started this news week on a bullish track and still flashing green around the 2,320.97 level, hitting the intraday high of 2,324.11 level. However, the reason for its downward movement could be linked to weaker-than-expected U.S. employment figures.

These disappointing reports have increased the chances that the Federal Reserve might lower interest rates in September, which has led to a drop in the U.S. dollar. The weaker dollar has been identified as one of the major factors influencing the recent dip in gold prices.

On the other hand, reduced concerns about geopolitical tensions in the Middle East, especially around the Iran-Israel situation, along with a more positive market outlook, could curb additional gains for safe-haven gold. Meanwhile, the escalating conflict between Israel and Hamas, with increased violence and humanitarian concerns, could boost demand for safe-haven assets like gold, leading to a potential rise in gold prices.

US Economic Data Sparks Rate Cut Speculation, Bolstering Gold Prices

On the US front, the broad-based US dollar unable to reverse its downward trend and continued to weaken, due to disappointing US economic data and the Federal Reserve's dovish stance. On the data front, US Nonfarm Payrolls increased by 175,000 in April, missing the expected 243,000 and reflecting a slowdown compared to March's revised 315,000.

The Unemployment Rate also inched up to 3.9% from the previous 3.8%, while Average Hourly Earnings decreased to 4.0% year-over-year in April from 4.3% in March.

Meanwhile, the US ISM Services PMI fell into contraction, dropping to 49.4 in April from 51.2 in March, missing the expected 52.0. Federal Reserve Governor Michelle Bowman expressed concern about persistent inflation and signaled a willingness to increase interest rates if inflation does not subside.

Although the latest jobs report did not meet expectations, a major economist from the Chicago Federal Reserve sees it as still fairly positive. This perspective suggests that the Federal Reserve's approach of keeping interest rates high to manage inflation might be effective.

However, many investors started to believe there was a greater chance that the Federal Reserve would reduce interest rates in September. This shift in expectations is reflected in the CME FedWatch tool, a tool that shows the market's forecast for Fed interest rate changes. The tool indicated that the probability of a rate cut in September rose to nearly 90%, a increase from 55% before the report was released.

Therefore, the bearish US dollar, mixed economic data and growing expectations for a Fed rate cut in September have supported gold prices, as lower interest rates typically increase demand for gold as a safe-haven asset.

Geopolitical Tensions in Gaza Likely to Boost Gold Prices Due to Safe-Haven Demand

On the geopolitical front, the escalation in tension between Israel and Hamas in Gaza could further drive up the price of gold. The Israeli military's order for Palestinians to evacuate eastern Rafah, coupled with the warning of "extreme force," suggests an imminent and potentially large-scale military operation in southern Gaza.

The recent intense Israeli bombardment, resulting in civilian casualties, including children, further exacerbates the tension and raises concerns about the humanitarian impact of the conflict.

Therefore, the escalating conflict between Israel and Hamas, with increased violence and humanitarian concerns, could boost demand for safe-haven assets like gold, leading to a potential rise in gold prices.

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

GOLD (XAU/USD) - Technical Analysis

As we analyze the technical landscape for gold on May 6, we observe that the precious metal is trading at $2309.37, showing a modest uptick of 0.33%. The day's trading pivot is set at $2318, indicating a slight undercurrent of bullish sentiment as gold sits below this level.

The immediate resistance level for gold lies at $2349, suggesting a potential target for investors should the current positive momentum persist. Further resistances are observed at $2370 and $2393, offering clear waypoints for traders utilizing breakout strategies.

Conversely, support levels are well defined at $2283, $2265, and $2248, marking crucial junctures where selling pressures may alleviate and buying could re-emerge.

From a technical indicator standpoint, the Relative Strength Index (RSI) at 50 depicts a neutral market scenario, suggesting neither overbought nor oversold conditions. This equilibrium signals caution among traders, indicating potential for either direction depending on broader market stimuli.

The 50-day Exponential Moving Average (EMA) currently at $2317 slightly trails the day's pivot, supporting the inference of possible bullish undertones if sustained buying pressure pushes the price above this average.

Considering the proximity of the gold price to its pivot and the 50 EMA, a cautious approach would recommend setting a Buy Stop at $2322. This entry point is strategically placed just above current levels, targeting a rise toward the first resistance at $2350, while a Stop Loss at $2305 minimizes potential downside risk.

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