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Gold Analysis: Rebound Towards $2,400 Resistance

  • Gold prices surged near the key psychological resistance of $2,400 per ounce (oz) today, trading at their highest level in nearly a month.
  • It is supported by a weaker US dollar and declining Treasury yields.
  • This comes after the latest US Consumer Price Index (CPI) data showed moderation, boosting expectations for a Federal Reserve rate cut.

Gold Analysis Today 16/5: Rebound Towards $2,400 (graph)

According to the results of the economic calendar data, US monthly inflation slowed to 0.3%, slightly below the 0.4% forecast, while headline inflation on a 12-month basis eased to 3.4% and core inflation to 3.6%, in line with expectations. In addition, US retail sales remained flat during the month, contrary to market expectations for a 0.4% increase, indicating some decline in consumer demand. Therefore, investors now expect a 75% chance of an interest rate cut by the US Federal Reserve in September and 85% in November. Low interest rates enhance the attractiveness of gold, which does not generate a return. Meanwhile, Chicago Fed President Austin Goolsbee expressed optimism that inflation will continue to decline.

The dollar index DXY fell to around 104.2 today, hovering near its five-week low as US inflation slowed in April, reinforcing expectations that the Fed will start cutting rates in September. Also, core inflation in the United States slowed to 3.6% year-on-year in April from 3.8% in March, which was in line with market expectations and recorded the lowest reading in three years. Weaker-than-expected US retail sales numbers for April also provided further evidence of a slowing economy.

Now, Investors are looking forward to the weekly US unemployment claims data and the Philadelphia Fed manufacturing index on Thursday. In general, the US dollar suffered losses in all areas, but it continued to weaken against the yen as the gap between US and Japanese yields narrowed.

Meanwhile, US Federal Reserve Chairman Jerome Powell stressed on Tuesday that a slower decline in cost pressures may prompt the US central bank to keep interest rates steady for a longer period. Moreover, the high interest rates weaken gold's appeal, but high inflation enhances its appeal as a risk shield.

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    Another factor affecting the gold market

    The 10-year US Treasury yield fell to 4.43% on Wednesday, its lowest level in about a month, as traders await the CPI report to gauge the timing of the first Fed rate cut. On Tuesday, US Producer Price Index data painted a mixed scenario as producer prices rose more than expected in April, but the March reading was revised sharply lower. Meanwhile, Fed Chairman Powell confirmed yesterday that the central bank will keep interest rates at a restricted level until there is confidence that inflation will return to its target, acknowledging that the decline in inflation has been slower than expected this year.

    Gold Price Forecast and Analysis Today:

    The general trend of the gold price is becoming increasingly strong towards rising to the psychological resistance level of $2400 per ounce. At the same time, it is moving technical indicators towards strong overbought levels, thus caution is advised against technical selling operations to take profits. So far, the gold price continues to receive strong momentum from the global central banks' trend towards easing policies and increasing their gold purchases, in addition to the ongoing global geopolitical tensions, which create a fertile environment for the rise of gold prices. Therefore, we still prefer buying gold at every dip.

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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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