Technical Analysis

GOLD Price Analysis – Oct 02, 2023

By LonghornFX Technical Analysis
Oct 2, 20234 min
Signal 2023 05 25 122622 002

Daily Price Outlook

Gold (XAU/USD) price failed to stop its downward trend and dropped significantly at the end of September, decreasing by more than 4.5%. This marks the second consecutive quarterly decline, and it was also the largest weekly drop in over two years. However, the main reason behind this decline is the growing belief that the Federal Reserve will keep interest rates higher for a longer period. Fed's indicated that it may raise interest rates one more time by the end of the year. This move makes other investments more attractive than gold because gold doesn't provide any interest or yield. As a result, investors are moving their money away from gold, causing its price to fall.

Gold's Brief Friday Boost Fades Quickly Amid Fed Expectations

It's worth noting that gold prices received a modest boost last Friday, thanks to some economic data, specifically the PCE Price Index, coming out of the United States. However, this uptick was short-lived, primarily because this data failed to alter the prevailing belief that the Federal Reserve (Fed) would persist in implementing a more stringent monetary policy. Consequently, US Treasury bond yields went up again on Monday, which posed a challenge for gold since it doesn't yield any interest. Thereby, gold witnessed its sixth consecutive day of decline, plummeting to its lowest value since March 10th.

Gold Prices Decline Due to Increased Risk Appetite

In addition to the Fed's anticipated stringent approach, another key factor contributing to the decline in gold prices is the growing confidence among investors to adopt riskier investment options, often referred to as a "risk-on" sentiment. This shift in sentiment was spurred by some favorable economic data emerging from China, surpassing expectations, coupled with the passing of a temporary funding bill by the US government over the weekend. These developments have led investors toward riskier assets, diverting their attention away from safe-haven choices like gold.

Nonetheless, a couple of factors are acting as a cushion to prevent gold from experiencing a significant drop. Firstly, the US Dollar witnessed a slight dip, making gold relatively more attractive. Secondly, the Relative Strength Index (RSI) on the daily chart has indicated that gold was oversold, signaling that it might not be an opportune moment for bearish traders to make substantial bets against gold. These factors collectively work to ease the downward pressure on gold prices.

Looking forward, investors will keep their eyes on a potentially eventful week. It begins with the US ISM Manufacturing PMI release on Monday, but the real highlight is the US NFP report due on Friday. In simpler terms, these key figures could exert a significant influence on the trajectory of gold prices.

GOLD Price Chart – Source: Tradingview
GOLD Price Chart – Source: Tradingview

GOLD(XAU/USD) - Technical Analysis

On a 4-hour chart timeframe, Gold currently navigates crucial price levels with a pivot point set at $1,874. Looking at the immediate resistances, the first is situated at $1902, followed by higher resistances at $1955 and $2035. Conversely, for support levels, an immediate support is observed at $1820 with subsequent supports placed at $1793 and the more distant one at $1712.

The technical indicators shed further light on the asset's current stance. The Relative Strength Index (RSI) presents a value of 18. Such a low RSI suggests the asset is in an oversold condition, typically interpreted as a bearish sentiment. However, caution must be exercised as oversold conditions can occasionally precede a price rebound.

Another significant technical pointer is the 50-Day Exponential Moving Average (EMA). With a current value standing at $1889 and the price of Gold trading below this, it hints at a short-term bearish trend for the asset.

Turning to chart patterns, Gold's chart reveals the formation of Lower Lows. Additionally, the presence of the Three Black Crows candlestick pattern emphasizes a strong selling bias. Historically, these patterns are strong bearish indicators, suggesting that there might be further declines in the near term.

No fundamental news has been provided as part of this outlook. In conclusion, Gold's trend appears bearish, especially if it sustains below the $1858 mark. However, if it manages to breach this level, the outlook might tilt towards the bullish side. For the short term, given the prevailing bearish indications, it wouldn't be surprising to see Gold test the immediate support level at $1820 in the coming days. 



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