Daily Price Outlook
During the early trading hours of Friday's European session, the gold price (XAU/USD) continued to climb, reaching around $1,920 per troy ounce. However. this upward trend is mainly influenced by positive data from China and new fiscal stimulus measures. Furthermore, gold price gained further strength as the US Dollar (USD) retreated from its six-month high, providing additional support for the precious metal.
Moving on, traders seem cautious to place any strong position ahead of the release of the US preliminary Michigan Consumer Sentiment Index during the North American session.
China's Positive Data Boosting Gold Prices
It is worth noting that China's positive economic data, coupled with the recent move by the People's Bank of China (PBoC) to reduce the Reserve Requirement Ratio (RRR) by 25 basis points (bps), is boosting market optimism and supporting gold prices. In August, China's Retail Sales (year-on-year) surged by 4.6%, surpassing the expected 3.0% increase and improving upon the previous month's 2.5% figure. Besides this, Industrial Production also outperformed, growing by 4.5% in August, compared to the estimated 3.7% rise in July. These robust numbers are contributing to the strength in gold prices.
US Dollar and Economic Data Impact on Gold Prices
The broad-based US dollar has stepped back from its recent six-month high and is now trading around 105.20. However, a significant drop in the dollar is likely because investors are cautious in response to the US Federal Reserve's (Fed) tough stance on monetary policy. In addition, US Treasury yields have bounced back, with the 10-year bond yield reaching 4.30% at the moment. These higher yields could give a boost to the USD.
However, the anticipation of the Fed's commitment to a stricter monetary policy, possibly involving more interest rate hikes and tightening measures, is expected to deter them from making any big investments in assets like gold. In the short term, the dollar's movements will continue to be influenced by monetary policy decisions and Fed communications.
Moreover, the recent US economic data has generally been positive. For the week ending September 8, Initial Jobless Claims came in better than expected at 220,000 new claims, showing a slight improvement from the previous week's 217,000. In August, the Core Producer Price Index (PPI) matched expectations with a 2.2% increase, though it was slightly lower than the previous 2.4% rise. Retail Sales also improved, rising by 0.6% compared to the previous month's 0.5%, beating the expected slowdown to 0.2%.
Thus, these numbers suggest a healthy US economy, which can influence market sentiment and trading decisions. Hence, the positive US economic data may pressure gold prices as it boosts confidence in the economy, reducing the appeal of safe-haven assets like gold.
GOLD(XAU/USD) - Technical Analysis
Gold commenced the trading session exhibiting evident bullish momentum, surpassing the $1,913.15 threshold and nearing the retest of the previously breached neckline of the head and shoulders pattern, which now stands as a pivotal resistance at $1,917.50. It's noteworthy to mention that the 50-day Exponential Moving Average (EMA50) aligns with this resistance level, reinforcing its significance and suggesting the potential for a renewed downtrend.
Given the current scenario, a prudent strategy would be to adopt a wait-and-see approach until there's a decisive breach of one of the critical levels mentioned, thereby offering greater clarity on the impending trajectory. A descent below the $1,913.15 support could indicate the reassertion of the bearish trend, with subsequent objectives at $1,890.00 and then $1,873.50.
Conversely, a breakthrough of the $1,917.50 resistance may negate the adverse implications of the pattern, paving the way for gold to ascend and target gains commencing at $1,929.00. The anticipated trading bandwidth for the day is projected between a support of $1,900.00 and resistance at $1,930.00.
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