Technical Analysis

GOLD Price Analysis – Oct 04, 2023

By LonghornFX Technical Analysis
Oct 4, 20234 min
Signal 2023 05 25 122622 002

Daily Price Outlook

Gold prices (XAU/USD) have been declining for eight consecutive days, nearing a seven-month low reached on Tuesday. However, this drop is primarily driven by the Federal Reserve's (Fed) indication of a more aggressive approach to raising interest rates, reducing gold's appeal as an investment choice. Moreover, the higher U.S. Treasury bond yields and the strength of the U.S. Dollar are further diminishing gold's attractiveness.

Investors are now awaiting two critical reports, the US ADP employment report, and the ISM Services PMI, hoping to identify potential short-term trading opportunities. Gold is facing challenges due to the Fed's intentions, high bond yields, and a robust U.S. Dollar, and traders are optimistic about favorable news that could reverse this trend.

Fed Rate Hikes and Gold's Challenges

It is worth noting that many people believe the Fed will keep raising interest rates for a while, which is not suitable news for gold because it doesn't pay interest. However, this belief was reinforced by the JOLTS report, which revealed a significant number of job openings in the U.S., signaling a robust demand for workers and a competitive job market. Furthermore, the rise in wages can potentially contribute to inflation, a matter the Fed is closely monitoring.

If inflation remains high, the Fed could continue raising rates well into 2024. This has triggered a sell-off in the U.S. bond market, pushing the yield on 10-year government bonds to its highest level in 16 years and bolstering the strength of the U.S. Dollar. However, gold's price drop might slow down because it's been falling a lot recently, and there's also some nervousness in the market. Traders are keeping an eye on reports like the US ADP and ISM Services PMI for short-term trading opportunities, but the big focus is on the US NFP report coming out on Friday.

Political Turmoil and Safe-Haven Gold

Across the ocean, Republican Kevin McCarthy, who successfully led efforts to fund the government until November 17, has been removed from his role as the U.S. House speaker. This disagreement within the Republican party has created confusion in the market, especially with the 2024 elections approaching and concerns about a possible recession on the horizon. These uncertainties are making investors nervous. Thereby, people tend to seek safety in assets like gold, which was seen as one of the key factor that could limit the number of bearish bets on XAU/USD (gold price) by traders.

Looking forward, traders are closely watching the ADP report, which is anticipated to reveal the addition of approximately 153,000 private-sector jobs in September, a decline from the 177,000 added in the previous month. Furthermore, the expected drop in the ISM Service PMI from 54.5 to 53.6 in September could also influence XAU/USD trading.

GOLD Price Chart – Source: Tradingview
GOLD Price Chart – Source: Tradingview

GOLD(XAU/USD) - Technical Analysis

Today, Gold (XAU/USD) is trading around the $1,830 mark per troy ounce, echoing the tremors and shifts of the global economic dynamics. Over the past 24 hours, several pivotal price thresholds have been identified. These include a pivot point set at $1,830, immediate resistance at $1,842, followed by subsequent resistances at $1,868 and $1,880. On the flip side, Gold finds its immediate support at $1,816, with further cushions at $1,797 and $1,786.

From a technical standpoint, the Relative Strength Index (RSI) for Gold stands at 20, signaling an oversold condition. Traditionally, an RSI reading below 30 is seen as an oversold marker, hinting at a possible price bounce or reversal in the near future. Furthermore, Gold's price positioning relative to the 50-Day Exponential Moving Average (50 EMA) — currently pegged at $1,865 — indicates a short-term bearish sentiment. However, should Gold breach this EMA, it could signal an incoming bullish wave.

Chart patterns also offer insightful cues. The current RSI, indicating oversold conditions, suggests a potential bullish reversal on the horizon. Moreover, the robust support zone anchored at $1,816 could serve as a magnet for potential buying, suggesting a bullish trend in the making. This implies that if Gold manages to sustain its stance above this crucial support realm, we might witness a surge in bullish momentum. However, a breach below this level could beckon sellers to the fore.

In wrapping up, the current trajectory for Gold leans towards a cautiously optimistic stance. The precious metal might embrace a bullish trend if it manages to hover above the $1,816 benchmark. Yet, any descent below this juncture could tilt the scales bearish. In the short term, given the constellation of technical indicators and the dance of support-resistance, Gold might aim to touch the resistance echelons of $1,842, or potentially even $1,868, in the upcoming trading sessions.

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