Technical Analysis

GOLD Price Analysis – May 23, 2024

By LonghornFX Technical Analysis
May 23, 20244 min

Daily Price Outlook

Gold's value (XAU/USD) struggled to reverse its decline, hovering near the $2,365 mark and hitting an intraday low of $2,355 during the day. However, the decline was mainly attributed to the hawkish stance of the US Federal Reserve, opting to prolong its restrictive monetary policy. This has led to a strengthening of the US dollar, adding pressure on gold priced in dollars. Traders are eagerly awaiting the initial figures of the US Manufacturing and Services Purchasing Managers Index (PMI) for May.

However, the weaker outcome could increase expectations of Fed rate cuts, providing support for gold. On the data front, the preliminary US S&P Global Manufacturing PMI is expected to remain at 50.0, indicating stagnant growth, while the Service PMI is forecasted to stay at 51.3 for May. These figures suggest that both sectors are experiencing minimal change, reflecting a stable but not improving economic situation.

Impact of the People's Bank of China's Gold Purchases on Gold Prices

On the other hand, the People's Bank of China (PBoC) has emerged as the leading purchaser among global central banks in the past year. Its acquisition of 225 tonnes of gold reserves in the previous year marked a record high since at least 1977. This notable increase in gold holdings by the PBoC reflects its strategic shift towards diversifying its reserve assets.

This move also signals China's intention to reduce its reliance on the US dollar and enhance the stability of its reserves. The PBoC's actions have contributed to the broader trend of central banks increasing their gold reserves as a means of diversification and risk management.

Consequently, the People's Bank of China's significant increase in gold reserves has bolstered market sentiment, contributing to upward pressure on gold prices.

Federal Reserve Minutes and Rate Cut Expectations

On the US front, the recent release of minutes from the Federal Open Market Committee (FOMC) meeting in the US highlighted concerns regarding inflation, which has not yet met the 2 percent target despite some easing in the past year. This has led to discussions about the potential delay in rate cuts. However, participants have agreed to maintain the current federal funds rate range, citing signs of ongoing solid economic growth.

On the other hand, investors are anticipating the possibility of the first rate cut occurring in September, with expectations of two quarter-point reductions before the end of the year. This sentiment is based on the CME FedWatch Tool, which currently indicates a nearly 60% probability of such moves.

As a result, the more hawkish tone conveyed in the Federal Open Market Committee (FOMC) minutes, signaling a potential interest rate hike or a more restrictive monetary policy, contributed to the downward pressure on gold prices. Furthermore, a hawkish stance led to the stronger US dollar, which has a negative impact on the price of gold.

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

GOLD (XAU/USD) - Technical Analysis

Gold prices (XAU/USD) are trading at $2,355.605, down 0.98% on the day. The 4-hour chart reveals a pivot point at $2,352.80. Immediate resistance levels are observed at $2,373.50, $2,395.78, and $2,416.08. On the downside, immediate support levels are $2,336.89, $2,322.69, and $2,304.97.

The Relative Strength Index (RSI) is currently at 23, indicating that gold is in oversold territory. This suggests potential for a corrective rebound. However, the 50-day Exponential Moving Average (EMA) stands at $2,410.20, well above the current price, highlighting the prevailing bearish trend.

Technically, gold is under pressure as it hovers just above the pivot point. A buy entry is recommended above $2,350 with a target of $2,375 and a stop loss at $2,335. This setup aims to capitalize on a potential bounce from oversold conditions while limiting downside risk.

Despite the bearish short-term outlook, the oversold RSI could trigger a short-term correction. If gold prices manage to break above the immediate resistance at $2,373.50, further gains towards $2,395.78 and $2,416.08 could be seen. Conversely, a break below $2,352.80 may lead to further declines, testing support at $2,336.89 and $2,322.69.

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