Technical Analysis

GOLD Price Analysis – Feb 06, 2024

By LonghornFX Technical Analysis
Feb 6, 20243 min

Daily Price Outlook 

Gold price (XAU/USD) prolonged its winning streak and drew further bids around the 2,027.58 level. However, the reason for its upward trend can be attributed to the bearish US dollar, which was losing traction despite multiple positive factors, including upbeat US economic data and a hawkish Fed stance. Investors are lowering their expectations for the Fed to cut interest rates more aggressively because recent strong US economic data shows the economy is still robust. Apart from this, long lasting geopolitical tensions and China’s economic woes were seen as other key factors that underpinned the safe-haven XAU/USD.

Investor Sentiment and Fed Policy Impact on Gold

It is worth noting that investors are lowering expectations for aggressive Federal Reserve policy changes due to strong US economic data, signaling a resilient economy. Notably, the US services sector grew in January, boosting confidence, alongside a robust jobs report, reducing the probability of a March rate cut. However, the hawkish Fed remarks suggests they may not cut rates until May or June, supporting higher Treasury bond yields and the US dollar. Consequently, the stronger dollar could cap further gains in gold price.

Geopolitical Tensions and Economic Uncertainty Boost Gold's Safe-Haven Appeal

Furthermore, the ongoing concerns about geopolitical tensions in the Middle East and China's economic slowdown have played its major role in underpinning the safe-haven gold. However, the instability in the Middle East and uncertainties surrounding China's growth, being the second-largest economy globally, contribute to investors seeking refuge in gold. These persistent worries bolster the attractiveness of gold as a reliable asset during times of uncertainty.

Hence, the geopolitical tensions and economic uncertainties typically increase demand for gold, potentially leading to higher prices in the market.

China's Increased Investment in Stock ETFs and Potential Impact on Gold Demand

Furthermore, China’s Central Huijin Investment company announced plans to boost its investment in Chinese stock ETFs, aiming to ensure the market's smooth operation. They're committed to protecting stability in the market. The news could potentially reduce demand for gold as investors may shift funds towards Chinese stock ETFs.

GOLD Price Chart - Source: Tradingview
GOLD Price Chart - Source: Tradingview

GOLD (XAU/USD) - Technical Analysis

Gold's price on February 6th modestly ascended to $2,026.27, a marginal increase of 0.06%. The precious metal's behavior on the 4-hour chart suggests a tentative stance among investors, with the pivot point at $1,995 acting as a gravitational center for price movements. Resistance levels are identified at $2,018, $2,040, and $2,067, marking potential ceilings that gold may struggle to surpass. Conversely, supports are established at $1,969, $1,947, and $1,921, which could offer floors to catch any downward price retractions.

Technical indicators offer a mixed perspective: The Relative Strength Index (RSI) at 43 signals neither overbought nor oversold conditions, hinting at a potential for either direction. The Moving Average Convergence Divergence (MACD) shows a value of -2.3 with its signal at -3.3, indicating that bearish momentum is waning as the MACD line is less negative than the signal, suggesting a cautious optimism for potential upside.

The 50-day Exponential Moving Average (EMA) at $2,029 slightly exceeds the current price, hinting at a near-term bearish bias but also providing a threshold for a bullish reversal if surpassed.

In conclusion, the current technical landscape for gold offers a nuanced view. With a recommended sell limit at $2,033, traders might look for a take profit target at $2,014 and a stop loss at $2,045, aligning with key technical levels and the broader tentative market sentiment.

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