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Gold Technical Analysis: Gold Heading Towards Important Support Base

The bears will look to extend the current declines towards $1930 or lower to the $1918 support.

  • At the end of last week's trading, gold prices (XAU/USD) suffered their first weekly loss in over a month.
  • Gold prices fell to the support level of $1,933 per ounce and closed the week trading around $1,938 per ounce.
  • This loss came despite the ongoing geopolitical tensions in the Middle East.

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    Gold Pressured by Hawkish FED

    In general, gold prices came under pressure due to new statements made by the chairman of the US Federal Reserve that monetary policy is not tight enough, suggesting the possibility of an increase in US interest rates. The strength of the dollar and the rise in Treasury yields also weighed on the price of the yellow metal. Overall, gold prices suffered a weekly decline of about 3%, which reduced their gains since the beginning of the year to about 6%.

    In the same performance, silver prices, the sister commodity of gold, suffered from further selling at the end of the week's trading. Prices fell to $22.325 per ounce. Meanwhile, the price of the white metal fell by more than 4% this week and has fallen by almost 8% since the beginning of the year. This was gold's first weekly loss in five weeks and the largest single-session decline since mid-April. According to trading, the strangest performance was last Thursday, when gold prices rose despite the negative pressures exerted by the rise in real yields and the rise in the price of the US dollar. Since the precious metal pays no interest to hold it, it becomes less attractive as yields rise.

    Likewise, because gold is denominated in US dollars, a higher dollar price makes it more expensive for foreign investors to buy it. Therefore, it appears that these negative forces for gold have been overcome by something stronger – perhaps direct purchases by central banks to increase their reserves. However, gold prices are still heading towards heavy weekly losses and the root cause may be the lack of tangible escalation in the Middle East. Despite the horror of the situation, the conflict has not spiraled out of control to include the entire region. Since this threat never materialized, it appears that speculators began to exit some of their long positions in gold that were supposed to protect them from the wrath of war.

    On the global central bank policy front, which affects the price of gold. Once again, Federal Reserve Chairman Jerome Powell surprised markets last Thursday after indicating that officials are dissatisfied with progress on inflation and “not convinced” that policy is restrained enough to overcome inflation in the US economy. “The FOMC is committed to achieving a monetary policy stance that is sufficiently restrictive to reduce inflation to 2 percent over time,” he said in his prepared speech at the International Monetary Fund. “We are not confident that we have achieved such a position.”

    At the same time, fears that the conflict in the Middle East could lead to a wider war have diminished. This has reduced the appetite for safe haven assets. Also, according to trading, the US Dollar Index (DXY), a measure of the US currency against a basket of other major currencies, fell by 0.1% on Friday. But the index will achieve weekly gains of about 0.8%. In general, the rise in the value of the US dollar is bad for goods priced in dollars because it makes it more expensive for foreign investors to buy them.

    Another factor affecting the gold market, US Treasury bond yields were mixed at the end of the week's trading. The ten-year bond yield settled at 4.62%. The two-year bond yield rose by about four basis points to 5.06%, while the 30-year bond yield fell by 3.7 basis points to 4.73%. Gold and other precious metals are sensitive to fluctuations in interest rates because they can affect the opportunity cost of holding non-yielding bullion. However, gold prices could rise again if the conflict between Israel and Hamas intensifies and spreads throughout the region.

    Gold price forecast for XAU/USD today:

    The XAU/USD gold price has now retreated to trade several levels below the 100-hour moving average line. As a result, it appears that the gold price is about to enter oversold levels on the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the gold price XAU/USD has recently completed a downward breach from the descending channel formation. The MACD on that time frame also appears to be supporting the downtrend after completing the bearish crossover. Therefore, the bears will look to extend the current declines towards $1930 or lower to the $1918 support. On the other hand, the bulls will be looking to pounce on bounces at around $1954 or higher at the $1962 resistance.

    In the long term, and according to the performance on the daily chart, it appears that the gold price XAU/USD is trading within a descending channel. It also appears that the daily MACD has recently completed a bearish crossover, indicating a bearish bias. Therefore, the bears will look to extend the current sequence of losses towards $1913 or lower to the $1876 support. On the other hand, the bulls will target long-term profits at around $1983 or higher at the $2016 resistance per ounce.

    XAU/USD chart

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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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