GOLD Price Analysis – May 16, 2024

Daily Price Outlook

Gold price (XAU/USD) continued its upward momentum, maintaining strong bids around $2,382 and reaching an intraday peak of $2,397. This surge can be attributed to the weakening of the US dollar, which lost ground following the release of the latest Consumer Price Index (CPI) report. The report indicated a slowdown in inflation in the US during April, prompting investors to anticipate potential interest rate cuts by the Federal Reserve (Fed) later this year.

Looking ahead, market participants are closely monitoring several key economic indicators, including US Building Permits, Housing Starts, weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Industrial Production, all scheduled for release on Thursday. Furthermore, investors are awaiting remarks from Fed officials Barr, Harker, Mester, and Bostic on the same day.

However, it's worth noting that any hawkish commentary from these officials could strengthen the US dollar and limit the upside potential of the precious metal in the short term.

Impact of US CPI Data on Federal Reserve Policy and Gold Prices

In the United States, the value of the US dollar declined as the recent release of subdued CPI inflation figures bolstered expectations for a potential reduction in interest rates by the Federal Reserve. This optimism surrounding a Fed rate cut contributed to the upward movement of precious metals such as gold.

Neel Kashkari, as President of the Federal Reserve Bank of Minneapolis, emphasized the need for careful economic monitoring to assess whether current policy rates are too restrictive. This has led to a shift in financial market projections, with CME's FedWatch Tool now suggesting a 75% chance of a Fed rate cut happening in September 2024, up from the previous 65% probability before the CPI report.

On the data front, the US Consumer Price Index (CPI) for April showed a year-over-year (YoY) increase of 3.4%, slightly lower than March's 3.5%, which aligned with market expectations. The monthly CPI inflation rate decreased to 0.3% from 0.4%, below the anticipated 0.4%. Excluding volatile items like food and energy, core CPI rose by 3.6% YoY, down from the previous 3.8%, with monthly core CPI also easing to 0.3% from 0.4%. In addition, US Retail Sales remained stagnant at 0% month-over-month (MoM) in April, in contrast to March's 0.6% rise and falling short of the estimated 0.4%.

Hence, the subdued Consumer Price Index (CPI) figures in the United States fueled optimism for a potential Federal Reserve interest rate reduction, which in turn weakened the US dollar and propelled gold prices higher.

Positive Trend in Global Gold Demand Driving Prices Higher

Another factor that has been boosting the gold price is the positive trend in global gold demand, as highlighted in the World Gold Council's Q1 2024 report. The report revealed a notable 3% increase in global gold demand, reaching 1,238 tonnes. This surge marks the strongest first quarter performance since 2016, indicating a significant uptick in appetite for the precious metal worldwide. The rise in demand underscores gold's enduring appeal as a safe haven asset and store of value, particularly in uncertain economic times.

Investors and institutions alike are increasingly turning to gold as a hedge against inflation, currency fluctuations, and geopolitical tensions, further bolstering its market position and driving prices higher.

GOLD (XAU/USD) - Technical Analysis

Gold (XAU/USD) is currently trading at $2388.545, up 0.12% over the previous session. The 4-hour chart reveals key price levels and technical indicators, providing a detailed view of potential market movements.

The pivot point is at $2395.45. Immediate resistance levels are set at $2406.25, $2417.29, and $2429.08. On the downside, immediate support levels are at $2375.32, $2360.83, and $2347.33.

These levels are crucial for traders to watch as they provide insight into possible breakout or breakdown points.

The Relative Strength Index (RSI) is currently at 69, indicating that the market is nearing overbought conditions. This could suggest that a bearish correction is imminent if the buying pressure does not sustain.

The 50-day Exponential Moving Average (EMA) is at $2341.33, which supports the overall bullish trend in the medium term.

Given these technical factors, a strategic approach to trading gold at this juncture is essential. The current market conditions suggest that selling below the pivot point of $2395 could be advantageous, targeting a take-profit level of $2375 and setting a stop-loss at $2405.

This strategy is based on the expectation that if gold fails to breach the immediate resistance level, it is likely to correct downward toward the support levels.

The current bullish momentum in gold is supported by several factors, including a weaker US dollar and heightened expectations of a Federal Reserve rate cut. These macroeconomic factors have historically supported gold prices, making it a favorable asset during times of economic uncertainty and lower interest rates.

However, traders should remain cautious. The RSI nearing overbought territory and the proximity of significant resistance levels suggest that the upward momentum could face challenges. A failure to breach the resistance at $2406.25 could lead to a pullback towards the support at $2375.32 or even lower.

In summary, while gold (XAU/USD) is showing signs of bullish momentum, technical indicators suggest that a bearish correction could be on the horizon. Entry strategies should consider selling below $2395 with a take-profit target at $2375 and a stop-loss at $2405.

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