Technical Analysis

GOLD Price Analysis – Jan 22, 2024

By LonghornFX Technical Analysis
Jan 22, 20244 min

Daily Price Outlook 

Gold prices (XAU/USD) failed to extend their previous bullish rally and lost some momentum around the $2,020 level. Gold started this new week on a weaker note as it dropped to the $2,020.99 level. However, the reason for its downward trend can be attributed to the recent hawkish comments from a Federal Reserve (Fed) policymakers, which diminish market expectations of an early rate cut.

This was seen as a key factor driving flows away from the non-yielding yellow metal. Furthermore, incoming US macro data, including Friday's upbeat consumer sentiment index, indicates that the economy is performing well. This has diminished market expectations of an early rate cut and is a contributing factor to the declines in gold prices.

In addition to this, a risk-on sentiment in the market was seen as another key factor that undermined the gold price. In contrast to this, the concerns about increasing tensions in the Middle East and ongoing worries about economic slowdown in China could offer some support to the safe-haven XAU/USD. Moreover, the lower US Treasury bond yields, which keeps the US Dollar (USD) bulls on the defensive, should help limit any further losses for the precious metal.

Gold Prices Slide Amid Diminished Expectations for Federal Reserve Rate Cut

It's important to mention that Gold prices lost momentum at the beginning of the week due to a decreased likelihood of the Federal Reserve cutting interest rates soon. Investors are feeling optimistic, and recent positive US economic data and comments from Fed officials made them less inclined to expect an early rate cut. The University of Michigan's survey indicated improved consumer sentiment, reaching its highest level since July 2021.

Traders now see less than a 50% chance of a rate cut in March, down from over 70% last week. Chicago Fed President Goolsbee emphasized the need for more inflation data, and San Francisco Fed President Daly cautioned that rate cuts aren't imminent.

Therefore, the reduced chance of a Federal Reserve rate cut, driven by positive economic data and officials' comments, caused Gold prices to decline. Improved investor sentiment and lower expectations for rate cuts led to the drop.

Escalating Geopolitical Tensions Spark Interest in Gold as a Safe-Haven Asset

Furthermore, the US launched its seventh attack on Houthi rebels in response to their anti-ship missile strikes in the Red Sea. Over 140 attacks on US bases have occurred since October 17, with seven in the past week, including a significant strike in Iraq. Iran, blaming Israel, vows retaliation for an attack in Damascus that killed five military officials.

Israeli forces clashed with Hamas in several places, and airstrikes resumed in the southern Gaza Strip. Israeli Prime Minister Netanyahu rejected a two-state solution, asserting Israel's need for security control over the entire territory west of the Jordan River.

Therefore, the increased geopolitical tensions, marked by US actions, Middle East clashes, and Iran-Israel tensions, can boost gold prices as investors often turn to gold as a safe-haven asset during uncertain and volatile times.

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

GOLD (XAU/USD) - Technical Analysis

Gold's market behavior on January 22 presents a slight contraction, with a 0.12% decrement, stabilizing at $2027.16. In the tapestry of global economic uncertainties, the precious metal finds itself in a tug-of-war between bearish pullbacks and the enduring allure of its safe-haven status.

Within the technical realm, Gold has etched a pivot point at $2,003, a strategic nexus that could determine its short-term fate. Resistance is arrayed at $2,030, with subsequent barriers at $2,059 and $2,089, each level a potential catalyst for further bullish excursions or a turning point for retracement. Supports are anchored at $1,975, $1,943, and $1,916, which may serve as bulwarks against deeper price dips.

The RSI rests at an equilibrium of 50, signifying a market in balance, with neither overbought nor oversold conditions evident. The MACD indicator signals a robust divergence (2.01) from its signal (-0.91), suggesting latent bullish tendencies may be gathering momentum beneath the surface.

Gold's 50-day EMA aligns closely with its current price, echoing the pivot point's critical significance. This confluence may act as a springboard for upward movements or a demarcation line for bearish reversals.

Conclusively, while the current trend hints at neutrality, the proximity of Gold's price to key technical thresholds suggests a potential for volatility. Traders considering entry may favor a sell position below the immediate resistance of $2,030, eyeing a take-profit mark at $2,015, and a stop loss at $2,040 to mitigate risk exposure.

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