Technical Analysis

GOLD Price Analysis – Oct 16, 2023

By LonghornFX Technical Analysis
Oct 16, 20234 min
Signal 2023 05 25 122622 002

Daily Price Outlook

Gold prices (XAU/USD) prolonged its upward rally and reached a three-week high at around $1,932-1,933 during the weekend. However, the reason for its bullish stance can be attributed to the escalating conflict between Israel and Hamas, which caused investors to turn to safe-haven assets like gold. Furthermore, the ongoing belief that the Federal Reserve is nearing the end of its interest rate increase cycle provided an additional boost to the value of this precious metal.

As its usual, gold tends to be an attractive choice during times of uncertainty in financial markets and the economy, even though it doesn't yield interest like some other investments. Therefore, the geopolitical tensions and the Fed's monetary policy outlook contributed to the significant rise in gold prices.

Looking forward, traders are cautious and holding off on making significant moves in the gold market as they are waiting for more information about the Fed's future interest rate decisions.

Escalating Geopolitical Tensions in the Middle East

As mentioned earlier, the price of gold surged by approximately 3.5% on Friday and witnessed a impressive growth of more than 5% for the entire week, marking the most significant rise since March. However, this surge in gold prices was a result of heightened tensions between Hamas and Israeli forces, causing people to seek gold as a safe investment.

It is worth noting that Israeli militaries have issued a deadline for residents in northern Gaza to leave. Furthermore, the Israeli military is now prepared with armored vehicles and is considering a large-scale ground assault in the Gaza Strip. This can be witnessed after the Israel Defense Force (IDF)'s announcement that showed their readiness for a coordinated attack using air, ground, and naval forces.

In response to this, Iran has warned of serious consequences if Israel's attacks continue. Furthermore, Israel will likely face potential conflict on its northern border with Lebanon due to clashes with the Iran-backed Hezbollah group. Hence, the situation is not showing any sign of slowing down and getting tense time by time. Therefore, the world is closely watching the developments in the region.

Economic Factors Impacting the Gold Market

Furthermore, US consumer sentiment declined in October, which strengthens the belief that the Federal Reserve (Fed) will maintain its current interest rates for a second consecutive month in November. This news has kept US bond yields at higher levels, with speculation that the Fed might not be done with its tightening policies and could raise rates once more before the year ends.

Traders seem cautious to place any strong position and prefer to wait for new information about the Fed's future rate plans and key economic data from China. In the meantime, the upcoming release of the Empire State Manufacturing Index in the US, speeches by Fed officials, and movements in US bond yields will influence the value of the US dollar. Plus, overall market sentiment will play a role in shaping the demand for the safe-haven gold.

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

GOLD (XAU/USD) - Technical Analysis

On October 16, gold exhibited a bearish sentiment, with its trading price falling to $1920.11, a decline of approximately 0.70% during the Asian trading session. This movement was documented over a four-hour chart timeframe, revealing noteworthy trends and potential market shifts.

Regarding vital data points, gold's current pivot point resides at $1900.57. For potential upward movement, resistance levels have been identified at $1967.03, escalating to $2000.26, and peaking at $2066.73.

On the opposing spectrum, should gold seek lower grounds, immediate support stands at $1866.01, further solidifying at $1799.54, and stabilizing at $1764.98.

From a technical standpoint, the Relative Strength Index (RSI) for gold is positioned at 73. This surpasses the 70 mark, indicating that gold is currently experiencing overbought conditions. Concurrently, the Moving Average Convergence Divergence (MACD) delineates a value of 4.33, contrasting with its signal line which is at 17.74.

This presents a scenario where the MACD line has maneuvered above its signal counterpart, implying a potential bullish momentum. However, the 50-Day Exponential Moving Average (EMA) clocks in at $1872.29. With gold's price situated above this EMA, the metal showcases a short-term bullish trend.

In conclusion, it is worth noting a significant downward trendline offering a robust resistance level at $1925. For investors and traders alike, considering a bearish sentiment below this juncture is advisable. Conversely, any movement above this resistance could tilt the balance in favor of the bulls.

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