Gold Primed for a Rebound: A Technical and Fundamental Analysis
Original Author: Yohay Elam, FXStreet
Adapted, expanded, and revised from the original article available at FXStreet.
Gold (XAU/USD) has recently pulled back from its highs, attracting attention from both short-term traders and long-term investors looking for new opportunities. Market conditions indicate that this pullback could be a setup for a rebound, supported by a combination of technical analysis, macroeconomic indicators, and sentiment analysis. In this article, we will explore the factors supporting a potential bounce in gold prices and how traders can position themselves accordingly.
Overview: Recent Price Movements
Over the past few weeks, gold has seen a notable dip after touching multi-month highs. This correction occurred in tandem with rising US Treasury yields and a stronger dollar, which generally weigh on non-yielding assets like gold. However, market dynamics are rapidly shifting:
– The Federal Reserve’s interest rate path remains uncertain.
– Inflation appears to be moderating.
– There are rising concerns about economic slowdown in the US and Europe.
– Geopolitical tensions persist, most notably in Eastern Europe and the Middle East.
– Central banks globally remain net buyers of gold, underscoring its long-term value.
These macroeconomic factors, combined with recent technical developments on the charts, suggest that gold may be on the verge of a technical and fundamental rally.
Technical Outlook: Bullish Signs After Pullback
Technical indicators are showing potential bullish reversal signals following the recent retracement from the $2,400 region. As noted by Yohay Elam in the original FXStreet piece, gold is currently trading above critical support levels that have historically prompted buying interest.
Key technical observations:
– The Relative Strength Index (RSI) on the 4-hour and daily charts has moved from overbought to neutral territory, indicating room for a renewed rally.
– Fibonacci retracement levels from the prior move up suggest the $2,300 area holds strong support, aligning with the 38.2% retracement level.
– Price action on lower timeframes shows bullish engulfing candlestick patterns, signaling a potential momentum shift.
– Moving averages: The 100-period EMA (Exponential Moving Average) on the 4-hour chart has acted as dynamic support, with gold bouncing off this level multiple times.
– Trendlines: A long-term ascending trendline has remained intact, reinforcing the broader uptrend narrative.
Support and Resistance Levels
For traders looking to identify entry and exit points, the following support and resistance levels are most relevant:
Support:
– $2,300: Key psychological level + Fibonacci retracement zone
– $2,285: Near-term technical support from May lows
– $2,250: Medium-term support from previous consolidation in April
Resistance:
– $2,365: Immediate resistance and last breakout point
– $2,390: Near the recent peak and potential double top formation
– $2,400: Psychological level and all-time high region
If gold is able to hold above $2,300 and reclaim $2,365 in the short term, the path toward retesting the record highs becomes plausible.
Macro Fundamentals Supporting Gold
1. Fed Policy and Interest Rates
Markets are increasingly uncertain about the Fed’s next move. While inflation remains above the 2% target, there are growing signs that it may be cooling. This puts the Federal Reserve in a dilemma: should it continue raising rates, hold steady, or begin cuts?
– CME FedWatch Tool shows increased probabilities of rate cuts by the end of 2024.
– Softer inflation data, such as the latest Core PCE readings, give the Fed breathing room.
– Slower economic activity, especially in the labor and housing markets, calls for a more dovish stance.
Lower interest rates reduce the opportunity cost of holding gold, making it more attractive for investors.
2. Inflation Concerns and Currency Devaluation
Despite short-term
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