GOLD Price Analysis – Oct 16, 2024
Daily Price Outlook
Gold prices (XAU/USD) continued their upward momentum, reaching around $2,675, marking a three-week high during the first half of the European session on Wednesday. This rise is largely driven by ongoing geopolitical tensions and disappointment over the lack of details surrounding China’s fiscal stimulus, which has dampened investors’ enthusiasm for riskier assets. Moreover, the current risk-averse sentiment has contributed to a decline in U.S. Treasury bond yields, further supporting gold's appeal as a non-yielding asset.
However, there are some headwinds for gold as well including stronger expectations for a less aggressive policy shift from the Federal Reserve, along with predictions for a standard 25 basis points (bps) rate cut in November, which are likely to boost U.S. bond yields. This environment has also lifted the U.S. dollar to its highest level in over two months, which may deter bullish traders from making new investments in gold.
Impact of U.S. Dollar Strength and Fed Policy on Gold Prices
On the U.S. front, the broad-based U.S. dollar has reached its highest level in over two months, driven by expectations for a less aggressive approach to policy easing by the Federal Reserve (Fed). Many investors anticipate a standard 25 basis points (bps) rate cut at the upcoming November meeting, which has contributed to higher U.S. bond yields. However, this stronger dollar could limit new investments in gold, which is seen as a safe-haven asset.
On Tuesday, U.S. Treasury bond yields fell for the second consecutive day due to weaker-than-expected manufacturing data and a decrease in inflation risks from declining oil prices. The New York Federal Reserve's Empire State Manufacturing Index dropped to -11.9 in October, indicating deteriorating economic conditions, the lowest reading since May.
As fears of supply disruptions ease and the outlook for demand weakens, crude oil prices fell to a two-week low, reducing inflationary pressures and making it easier for the Fed to consider further interest rate cuts.
Despite this, the market is pricing in a greater chance of smaller interest rate cuts at the next Federal Open Market Committee (FOMC) meeting in November. This is expected to support the U.S. dollar and limit any significant gains for gold (XAU/USD).
Additionally, comments from Fed officials like San Francisco Fed President Mary Daly suggest that the central bank is making progress in controlling inflation, with one or two more rate cuts possible this year, while Atlanta Fed President Raphael Bostic notes that the economy is performing well, with inflation trending back towards the 2% target.
Therefore the strengthening U.S. dollar and higher bond yields, alongside expectations of smaller interest rate cuts, may limit gold's gains. While easing inflation risks provide some support, overall sentiment could lead to reduced bullish activity in gold markets.
GOLD (XAU/USD) – Technical Analysis
Gold (XAU/USD) is currently trading at $2,670.6, up 0.51%, reflecting a continuation of its bullish momentum. On the 4-hour chart, prices are hovering near key resistance at $2,674, just below the pivot point of $2,682.
A break above this level could lead to further gains, with next resistance levels at $2,685 and $2,694. However, if gold fails to maintain momentum, immediate support is found at $2,656, with further downside potential toward $2,646 and $2,638.
The Relative Strength Index (RSI) is currently at 64, indicating that while bullish momentum remains intact, gold is approaching overbought territory. This suggests some caution for traders, as a pullback may be on the horizon.
The 50-period Exponential Moving Average (EMA) sits at $2,647, providing dynamic support. As long as prices remain above this level, the outlook remains positive.
Traders looking to capitalize on this trend might consider entering buy positions above $2,665, with a target of $2,682. A stop loss at $2,655 would protect against downside risks, particularly if gold dips below key support levels.
In conclusion, gold’s current trajectory remains bullish, but traders should watch key levels closely. A break above $2,674 could signal further gains, while a move below $2,656 might indicate a broader correction.
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