Technical Analysis

GOLD Price Analysis – July 04, 2024

By LonghornFX Technical Analysis
Jul 4, 20243 min

Daily Price Outlook

Despite the risk-on market sentiment, Gold (XAU/USD) gained upward momentum, reaching around $2,354 per ounce and touching an intra-day high of $2,362.

This slight upward trend could be attributed to a weaker US dollar, which lost traction amidst increasing expectations that the Federal Reserve (Fed) may initiate a rate-cutting cycle later this year.

Investors appeared cautious ahead of the upcoming US Non-Farm Payrolls (NFP) report scheduled for Friday. However, the risk-on market sentiment, influenced by low trading activity due to the US Independence Day holiday, was seen as a factor limiting further gains in the Gold price.

Impact on Gold Prices Amid US Economic Concerns and Dollar Weakness

On the US front, the broad-based US dollar dropped as many believed the Federal Reserve might start cutting interest rates later this year. This belief grew stronger after recent economic reports showed weaknesses in job markets and signs of the economic slowing down.

The minutes from the latest Federal Open Market Committee meeting confirmed that policymakers are worried about the US economy cooling off gradually. This led to lower yields on US Treasury bonds, which in turn pushed the US dollar to its lowest point in three weeks.

On the economic front, the private sector added 150,000 jobs in June, slightly less than expected and down from 157,000 in May. At the same time, more people filed for unemployment benefits, reaching the highest level in 2-1/2 years, showing weakening job market conditions.

Furthermore, the Services Purchasing Managers' Index (PMI) for June dropped to 48.8, signaling a contraction in the services sector and hitting its lowest point since May 2020, much lower than predicted.

These trends highlight ongoing economic challenges in the US, which are likely influencing the Federal Reserve's decisions on interest rates.

Therefore, the weakening US dollar and concerns over economic slowdown have boosted gold prices. Investors seek gold as a hedge against economic uncertainty and potential future rate cuts by the Federal Reserve.

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

GOLD (XAU/USD) - Technical Analysis

Gold (XAU/USD) is trading at $2355.755, up 0.13% in the early European session. The 4-hour chart highlights crucial technical levels.

The pivot point at $2360.44 is significant, serving as a potential reversal or continuation point in today's trading. Immediate resistance levels are at $2368.99, $2377.06, and $2384.50. Breaching these levels may trigger a sell-off.

Immediate support is identified at $2347.61, with further support at $2341.81 and $2336.27. These levels provide potential buying opportunities if the price dips.

Technical indicators suggest caution. The Relative Strength Index (RSI) is at 68, nearing the overbought zone, indicating a possible bearish correction. An RSI near such high levels often signals overvaluation, increasing the likelihood of a price drop.

The 50 EMA is at $2327.71, indicating a bullish trend as long as the price remains above this moving average. The EMA acts as dynamic support, reinforcing a bullish bias, provided prices stay above it.

Given the market setup, a conservative strategy would be to sell gold if it falls below the pivot point of $2360.44. An entry price at $2360 aligns with potential bearish correction.

Traders should set a take-profit target at $2345, matching immediate support levels, ensuring a favorable risk-reward ratio while capturing downside movement. A stop-loss at $2368, just above immediate resistance, limits losses from unexpected upward moves.

In summary, while gold remains bullish above its 50 EMA, the near-overbought RSI and key resistance levels suggest a potential short-term bearish correction.

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