Technical Analysis

GOLD Price Analysis – Oct 20, 2023

By LonghornFX Technical Analysis
Oct 20, 20233 min
Signal 2023 05 25 122622 002

Daily Price Outlook

Gold prices (XAU/USD) prolonged its winning streak and surged to a near three-month high on Friday. However, the reason for its upward rally can be attributed to concerns surrounding geopolitical tensions in the Middle East, which have heightened the safe-haven demand for gold and contributed to its gains. Furthermore, the growing expectation that the Federal Reserve (Fed) will maintain interest rates at their current levels for the second consecutive time in November is seen as another factor driving the non-yielding yellow metal higher for the fourth consecutive day.

Geopolitical Factors Driving Gold Price Surge

As previously mentioned, the price of gold has been steadily rising, reaching a nearly three-month high last Friday. However, this upward trend is primarily attributed to geopolitical risks, which are prompting investors to seek safe-haven assets, with gold being a preferred choice. Specifically, the concerns about the potential spillover of the Israel-Hamas conflict into other Middle Eastern countries and its potential impact on the global economy are key factors supporting the increase in gold prices.

It's important to highlight that Israeli airstrikes in the Gaza Strip have escalated tensions in the region. In addition, Israel has launched missile strikes in Lebanon and Syria, and Egypt has been impacted by the conflict due to the bombing of the Rafah border crossing. These ongoing developments are maintaining the demand for gold as a safe-haven investment.

Impact of Federal Reserve and US Treasury Bond Yields on Gold Prices

Moreover, the increasing consensus that the Federal Reserve (Fed) will keep interest rates at their current levels for the second consecutive time in November is considered another factor driving the non-yielding gold higher for the fourth consecutive day. Federal Reserve Chairman Jerome Powell has suggested that, considering the economy's resilience and the tight labor market, the possibility of additional interest rate hikes is under consideration.

Nevertheless, the benchmark 10-year US Treasury bond yield reached a new high not seen in 16 years on Thursday, which boosted the US Dollar and garnered buying interest on Friday. The confluence of these heightened US bond yields, slight USD strength, and overbought conditions on hourly charts may potentially curtail further gains for XAU/USD.

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

GOLD (XAU/USD) - Technical Analysis

In the ever-evolving world of commodities, GOLD begins the day priced at $1976.450, experiencing a marginal decline of 0.04% in the past 24 hours. The pivotal price level to observe is notably set at $1,955. Market participants should keep a close watch on an ascending scale of resistance levels: initially at $1,982, followed by $2,001 and culminating at $2,021. On the flip side, downside supports are observed at $1,930, further down to $1,909, and a significant cushion at $1,886.

Diving deeper into the technical tapestry, the Relative Strength Index (RSI) offers pivotal insights. Standing at a noteworthy 83, it signals that GOLD is currently overbought. Historically, values above 70 tend to caution investors of potential market saturation and prospective price corrections.

Concurrently, the MACD, a crucial momentum indicator, sketches a bullish narrative. This is discerned from the MACD line's ascendancy over the signal line, forecasting an upward movement in the immediate future. Adding nuance to our analysis, the 50-day Exponential Moving Average (50 EMA) rests at $1,921.

GOLD trading above this benchmark amplifies a short-term bullish inclination.

From a chartist's perspective, a symmetrical triangle formation commands attention. The recent break above this configuration foreshadows impending bullish momentum.

To encapsulate, while the overarching sentiment for GOLD remains somewhat bearish beneath the $1985 demarcation, a potential breakout above could catalyze a notable appreciation in its valuation. In the ensuing days, we project GOLD to challenge the proximate resistance at $1,982. Should it navigate past this juncture, we might brace for loftier valuations.

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