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Gold Technical Analysis: Prices Await Important Data

Since the start of this week's trading, XAU/USD gold prices remained stable around their recent strong gains.

  • The XAU/USD gold ounce price reached the $1886 resistance level, its highest in eight months.
  • Its gains came amid increasing expectations of a less sharp rise from the US Federal Reserve this month.
  • This positive performance of the gold market comes with the weakness of the US dollar against other currencies after the strong year 2022, as the metal enjoys an inverse relationship with the price of the dollar.
  • There are also growing expectations that the Federal Reserve will raise interest rates in the vicinity of 25-50 basis points next month, which are currently set at 4.25-4.5 percent.

This more pessimistic view contrasts with the bullish approach taken by the US central bank last year.

The Fed raised interest rates rapidly over the fall and winter to combat inflation, which peaked at 8.2 percent in September before tapering later in the year to 7.1 percent in November.

Gold also has a reputation as a safety-oriented asset, which has also attracted investors amid expectations of a sharp economic slowdown. Commenting on this, Robert Rowling, market analyst at Kinesis Money, said: “Gold's big run continues with the precious metal now trading at an eight-month high. Dollar weakness combined with expectations that the latest big interest rate hikes by the Federal Reserve are already overdue, created ideal conditions for gold to continue its impressive recovery that began in early November.”

XAU/USD gold price is back to the upside after the safe-haven metal retreated from last spring's rally. As the price of the yellow metal rose to $ 2043 an ounce in early March in the aftermath of the Russian invasion of Ukraine, with the subsequent volatility in the economy driving investors towards gold. Prices remained high through the spring before falling through the summer amid the Fed's aggressive response and spiraling inflation, with prices dropping to $1,627 in September before stabilizing in the winter.

The analyst argued that the latest rally will be tested by the release of the latest US inflation data, which he described as a "key reference point" for "traders and investors to assess the macroeconomic situation of the world's largest economy." He explained: “The constant worry about gold's impressive rally is that it was based on sentiment rather than facts. The price of gold rose in December despite the Fed's rate hike and is still rising now even though the Fed is again expected to raise its benchmark interest rate at its next meeting.

“Thus, it would only take one or two points of negative data or a sudden move by the Federal Reserve to cause gold to face a sudden change of heart.”

Craig Erlam, Chief Market Analyst at OANDA, was curious to see if the market would correct any future bullish swings. He said: “Currently, the price of the yellow metal is facing strong resistance around $1,880 and $1,920, an area around which we have seen a lot of activity in recent years. The momentum is still favorable for the bulls, but that may change now that the price is testing the $40 range.”

XAU/USD gold price forecast today:

There is no change in our technical point of view. The general direction of the XAU/USD gold price will remain bullish as long as prices are above the psychological top of $1800 an ounce. The gains this week increased the expectations of moving towards the next psychological summit of 1900 dollars an ounce. This may happen unless the US dollar gets momentum from the US inflation figures today. Conversely, the XAU/USD gold price may be exposed to quick profit-taking sales in the event that US inflation figures favor tightening US Federal Reserve policy.

As the technical indicators moved towards overbought levels after the recent gains. A breach of the current XAU/USD gold price trend will not occur without moving towards the support levels of 1825 and 1790 dollars, respectively.

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Mahmoud Abdallah
About Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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