Technical Analysis

GOLD Price Analysis – Oct 23, 2023

By LonghornFX Technical Analysis
Oct 23, 20234 min
Signal 2023 05 25 122622 002

Daily Price Outlook

Despite ongoing geopolitical tensions between Israel and Hamas, which typically lead to increased demand for gold as a traditional safe-haven asset, the price of gold (XAU/USD) ended its winning streak and is currently trading lower at around $1,970 per troy ounce during the Asian session on Monday. However, this decline can be attributed to a rebound in the US Dollar, which is receiving support from improved US Treasury yields.

US Dollar Gains and Fed's Cautious Stance

It's worth noting that the US Dollar Index (DXY) has experienced a resurgence, currently trading at around 106.30. This comeback can be attributed to the positive movement in US Treasury yields, particularly the 10-year yield, which currently stands at 4.98%, reflecting a 1.30% increase at the moment. The US Dollar is also receiving a boost from some robust US economic data released last week. The latest job data indicates a strong economy, with the lowest Weekly Initial Jobless Claims since January, signifying a robust job market.

In contrast to this, Atlanta Fed President Raphael Bostic recently stated that the Federal Reserve is unlikely to lower interest rates until at least the middle of next year. Furthermore, Patrick Harker, the President of the Philadelphia Fed, has consistently supported for maintaining interest rates at their current levels without any adjustments.

On the Cleveland Fed front, Loretta Mester noted that the Fed might have completed its rate hikes or is, at the very least, approaching the peak in this rate hike cycle. However, Mester also admitted that the data unveiled last week might have an effect on the central bank's future decisions about monetary policy.

In a recent statement, Federal Reserve Chairman Jerome Powell made it clear that the central bank doesn't have any immediate intentions to increase interest rates. However, he openly acknowledged that they might think about tightening monetary policy even more if they spot more signs of economic growth.

Hence, the dovish comments from Fed officials, such as Loretta Mester and Jerome Powell's emphasis on avoiding immediate rate hikes, were considered one of the key factors that could potentially limit further gains in the US dollar.

Geopolitical Tensions and Market Outlook

Elsewhere, escalating tensions in the Middle East could potentially drive up the prices of safe-haven assets, such as gold. It's worth noting that concerns regarding the Israel-Hamas conflict escalating into a broader Middle East conflict have increased, prompting warnings from Washington about significant risks to US interests in the region. Therefore, this uncertainty may lead investors to seek the safety of gold as a hedge against geopolitical instability.

Looking forward, investors will closely watch the US S&P Global PMI on Tuesday and the Q3 Gross Domestic Product (GDP) on Thursday. These important indicators could greatly influence market sentiment and offer valuable insights into the overall US economy.

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

GOLD (XAU/USD) - Technical Analysis

As markets transition into the final week of October, gold's pricing dynamics reveal intriguing patterns worth decoding for potential investors. At the outset, the precious metal's current trading price stands at $1973.69, reflecting a modest decline of 0.34%. Based on a 4-hour chart analysis, several key levels and technical indicators present themselves, offering hints about gold's prospective trajectory.

The pivot point for gold, a key technical tool used by traders to gauge potential price movements, is currently pegged at $1954. Climbing the ladder, gold faces its first resistance level at $1982.. Should bullish sentiments prevail, the subsequent resistances are identified at $2001 and $2020. Conversely, in a more bearish scenario, immediate support is positioned at $1929, followed by the next support tiers at $1909 and $1885.

Shifting the lens to technical indicators, the Relative Strength Index (RSI) reads at 65. Traditionally, an RSI reading above 70 is indicative of overbought conditions, suggesting that the asset might be poised for a potential pullback. Gold's current RSI, although below this threshold, is edging closer to the overbought territory, hinting at a strong bullish sentiment but also cautioning traders of possible future corrections.

Further insights are provided by the Moving Average Convergence Divergence (MACD) indicator. With an MACD value of -1.662 and a signal value of 15.582, the MACD line's position below the signal line flags potential bearish momentum in the short term. This divergence warrants attention as it can often presage directional shifts in price.

Lastly, gold's price vis-à-vis the 50-Day Exponential Moving Average (EMA) paints a bullish picture. With the 50 EMA valued at $1929.67, and gold trading substantially above this mark, the prevailing trend leans bullish in the short term. Historically, prices above the 50 EMA often suggest sustained upward momentum, making it a positive sign for gold bulls.

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