GOLD Price Analysis – May 20, 2024
Daily Price Outlook
Gold prices (XAU/USD) have prolonged its winning streak and hovering around the $2,441 level, hitting the intraday high of 2,450 level. However, the reason behind this surge was the increasing speculations of potential Fed rate cuts.
Meanwhile, the escalating geopolitical tensions in the Middle East was seen as another key factor that put upward pressure on Gold prices.
Looking ahead, investors will closely watch the release of the Federal Open Market Committee (FOMC) minutes on Wednesday. These minutes are anticipated to reveal that policymakers emphasized their intention to keep interest rates restrictive for an extended period.
Impact of Fed Policy Expectations on Gold Prices
On the US front, the US dollar has experienced a decline, driven by expectations of Fed rate cuts. These expectations were fueled by recent statements from key Federal Reserve figures, including Bostic, Barr, Waller, Jefferson, and Mester, indicating a cautious approach to future monetary policy.
This sentiment has led investors to anticipate imminent rate cuts by the Fed, exerting a strong impact on gold prices.
Fed Governor Michelle Bowman has acknowledged that the current policy stance is restrictive, with high interest rates aimed at controlling inflation. Despite this, she is ready to raise rates further if inflation stagnates or reverses.
This has reinforced expectations for potential rate cuts. Financial markets have already factored in the likelihood of rate reductions, as futures markets show significant probabilities of cuts in the near future.
Therefore, the anticipation of Fed rate cuts has weakened the US dollar, driving investors towards gold as a safe-haven asset. This shift in investor sentiment has significantly boosted gold prices, as lower interest rates typically increase gold's attractiveness compared to interest-bearing assets.
Impact of Tragic Death of Iran's President and Foreign Minister on Gold Prices
On the geopolitical front, the escalating tensions in the Middle East have further boosted gold's safe-haven appeal. However, the latest report reveals that Iran's President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian tragically died in a helicopter crash in East Azerbaijan province.
Rescuers found the crash site after a difficult search in challenging weather. With the president's death, Iran's vice president will temporarily assume presidential duties. New elections will be held within 50 days to elect a new president.s.
Therefore, the escalating tensions in the Middle East, compounded by the tragic death of Iran's President Raisi and Foreign Minister Amirabdollahian, have significantly boosted gold's safe-haven appeal.
GOLD (XAU/USD) - Technical Analysis
Gold (XAU/USD) is trading at $2,438.545, up 0.98% on the day. The 4-hour chart identifies the pivot point at $2,439.93, which is crucial for near-term price action. Immediate resistance is seen at $2,450.19, followed by $2,460.97 and $2,471.53.
On the downside, immediate support lies at $2,430.76, with further support at $2,424.04 and $2,413.64.
The Relative Strength Index (RSI) is at 78, indicating that gold is in overbought territory and may be due for a correction. The 50-day Exponential Moving Average (EMA) is positioned at $2,381.09, reinforcing the overall bullish trend.
However, the RSI’s high value suggests caution, as prices may pull back from current levels.
The market is observing a significant level of resistance at the pivot point of $2,439.93. If gold fails to sustain above this level, a bearish correction could be triggered, potentially driving prices down to the support levels mentioned.
Traders should be vigilant around the $2,450.19 resistance, as a break above this could lead to further gains toward $2,460.97 and $2,471.53.
In the current scenario, the recommended strategy is to sell below $2,440, with a target of $2,417 and a stop loss at $2,453. This approach aligns with the technical indicators, which suggest a potential pullback due to overbought conditions.
The 50 EMA at $2,381.09 provides a solid support base, indicating that the bullish trend could resume once the market corrects from overbought levels.
In conclusion, while gold remains bullish above the $2,439.93 pivot point, caution is warranted due to the high RSI value. A break below this level can drive a sharp selling trend, while holding above could push prices towards higher resistance levels.
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