Technical Analysis

GOLD Price Analysis – March 21, 2024

By LonghornFX Technical Analysis
Mar 21, 20243 min

Daily Price Outlook

Gold price (XAU/USD) managed to stop its previous losing streak and hit a fresh all-time high, gaining traction around the 2,220 level. The reason for its upward rally could be attributed to the weaker US dollar, which lost its momentum on the back of the Fed's dovish outlook. The Federal Reserve indicated that it remains on track to cut interest rates by 75 basis points this year, easing market jitters that the central bank will lower its projection for the number of rate cuts to two amid sticky inflation.

Hence, the indication of a 75 basis point interest rate cut by the Federal Reserve eased market concerns, likely weakening the dollar and bolstering gold prices.

In contrast to this, the upward trend in global stocks has limited gold's gains as investors prioritize riskier assets over safe havens like gold.

Fed’s Projected Three Rate Cuts Benefit Gold Amid Weakening USD

On the US front, the Federal Reserve's plan to cut interest rates three times this year has affected gold prices. When the Fed adopts a "dovish" stance, meaning they're less concerned about inflation and more focused on boosting economic growth, it tends to lower interest rates. This makes the US dollar less attractive to investors because they can earn less return on their investments. As a result, the value of the dollar decreases supporting gold prices.

Traders are closely monitoring the Fed's policy decisions and economic projections for signals of future rate cuts, with market sentiment largely favoring a dovish outlook. As a result, gold continues to benefit from the prospect of lower interest rates and a weaker dollar, driving its upward trajectory.

Prevalent Risk-On Mood and its Impact on Gold Price

Despite the bullish performance of gold, an ongoing risk-on mood in the markets has capped some of the metal's gains in recent sessions. However, the extension of the recent bullish run across global equity markets has diverted investor attention away from safe-haven assets like gold, as risk appetite increases and confidence in riskier assets grows. This has led to some profit-taking in gold, particularly as the metal reached slightly overbought conditions on the daily chart.

Despite temporary setbacks from risk-on sentiment, the fundamental factors favoring gold's rise persist. The overall direction for gold remains upward due to ongoing supportive conditions. Although short-term fluctuations may occur, the underlying drivers of gold's bullish performance are expected to endure in the medium to long term.

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

GOLD (XAU/USD) - Technical Analysis

Gold's price edged higher, gaining 0.81% to settle at $2204.155 on March 21, highlighting investors' continued interest in the safe-haven asset amid economic uncertainties. With the market hovering near the pivot point at $2205, gold faces significant resistance levels at $2215, $2225, and $2235, which are crucial barriers to its upward trajectory. Conversely, support levels at $2195, $2186, and $2177 offer a foundation should the price retrace.

Technical indicators suggest a cautious outlook; the Relative Strength Index (RSI) at 77 points towards overbought conditions, indicating potential for a pullback. Moreover, with the 50-Day Exponential Moving Average (EMA) at $2160, gold's price action has notably distanced itself from recent averages, suggesting a potential reevaluation of its current valuation.

Investors should watch the $2215 resistance level closely, as a failure to breach this mark could lead to a sell-off towards the $2194 support level, with a stop-loss advised at $2225 to mitigate risk.

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