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July 18, 2024
PI Global Investments
Gold

XAU/USD primed for a Bull Pennant, pre-Fed profit-taking


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  • Gold price is set to book the first weekly decline in four on Friday.
  • Dollar rebounds with Treasury yields after hot US PPI inflation data.
  • Gold price is portraying a potential Bull Pennant on the daily chart.  

Gold price is consolidating weekly losses near $2,160 early Friday, as risk sentiment remains sour and keeps the US Dollar (USD) underpinned. Gold traders remain wary and refrain from placing fresh positional bets, as the focus shifts to next week’s US Federal Reserve (Fed) monetary policy announcements.

Pre-Fed profit-taking could spike up Gold price volatility

Gold price snapped its previous rebound and fell hard on Thursday after traders began to dial down bets for a June Fed interest rate cut following a hotter-than-expected Producer Price Index (PPI) inflation report. 

Data showed on Thursday that the PPI for February rose 0.6% MoM, up sharply from 0.3% in January while beating the market estimate of 0.3%. The reading was the highest rate since August 2023. PPI increased at an annual rate of 1.6%, up from a revised 0.9% in January.

Meanwhile, Retail Sales in the US rose 0.6% last month after falling a revised 1.1% in January, dragged down in part by inclement weather, according to the Commerce Department’s report on Thursday.

Markets paid little heed to the weak US Retail Sales report, as hot PPI inflation data overpowered the sentiment around the US Dollar. The Greenback jumped on the PPI data release, following the ongoing recovery rally in the US Treasury bond yields.

Traders have pared back the chances of a rate cut at the Fed’s June meeting to 62%, from about 75% last Friday, according to the CME Group’s FedWatch Tool.

Next of note for Gold price remains the preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data. However, markets could use profit-taking ahead of the March 19-20 Fed policy meeting as an excuse to revive the buying interest in Gold price. End-of-the-week flows could also play their part in the Gold price action in the sessions ahead.

Gold price technical analysis: Daily chart

As observed on the daily timeframe, Gold price has charted a potential Bull Pennant formation, with a daily closing above the falling trendline resistance at $2,174 to confirm the bullish continuation pattern.

The doors would then open up again for a test of the record high at $2,195 on acceptance above Tuesday’s high of $2,185. The next key upside targets are seen at the $2,200 threshold and the $2,250 psychological level.

The 14-day Relative Strength Index (RSI) is flirting with the overbought region near 70.00, suggesting that there is scope for a fresh upswing.

If Gold sellers regain control and breach the rising trendline support at $2,156 on a sustained basis, a further decline toward the $2,150 level cannot be ruled out.

Further down, the static support at $2,125 will come to the buyers’ rescue.

 

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

 

  • Gold price is set to book the first weekly decline in four on Friday.
  • Dollar rebounds with Treasury yields after hot US PPI inflation data.
  • Gold price is portraying a potential Bull Pennant on the daily chart.  

Gold price is consolidating weekly losses near $2,160 early Friday, as risk sentiment remains sour and keeps the US Dollar (USD) underpinned. Gold traders remain wary and refrain from placing fresh positional bets, as the focus shifts to next week’s US Federal Reserve (Fed) monetary policy announcements.

Pre-Fed profit-taking could spike up Gold price volatility

Gold price snapped its previous rebound and fell hard on Thursday after traders began to dial down bets for a June Fed interest rate cut following a hotter-than-expected Producer Price Index (PPI) inflation report. 

Data showed on Thursday that the PPI for February rose 0.6% MoM, up sharply from 0.3% in January while beating the market estimate of 0.3%. The reading was the highest rate since August 2023. PPI increased at an annual rate of 1.6%, up from a revised 0.9% in January.

Meanwhile, Retail Sales in the US rose 0.6% last month after falling a revised 1.1% in January, dragged down in part by inclement weather, according to the Commerce Department’s report on Thursday.

Markets paid little heed to the weak US Retail Sales report, as hot PPI inflation data overpowered the sentiment around the US Dollar. The Greenback jumped on the PPI data release, following the ongoing recovery rally in the US Treasury bond yields.

Traders have pared back the chances of a rate cut at the Fed’s June meeting to 62%, from about 75% last Friday, according to the CME Group’s FedWatch Tool.

Next of note for Gold price remains the preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data. However, markets could use profit-taking ahead of the March 19-20 Fed policy meeting as an excuse to revive the buying interest in Gold price. End-of-the-week flows could also play their part in the Gold price action in the sessions ahead.

Gold price technical analysis: Daily chart

As observed on the daily timeframe, Gold price has charted a potential Bull Pennant formation, with a daily closing above the falling trendline resistance at $2,174 to confirm the bullish continuation pattern.

The doors would then open up again for a test of the record high at $2,195 on acceptance above Tuesday’s high of $2,185. The next key upside targets are seen at the $2,200 threshold and the $2,250 psychological level.

The 14-day Relative Strength Index (RSI) is flirting with the overbought region near 70.00, suggesting that there is scope for a fresh upswing.

If Gold sellers regain control and breach the rising trendline support at $2,156 on a sustained basis, a further decline toward the $2,150 level cannot be ruled out.

Further down, the static support at $2,125 will come to the buyers’ rescue.

 

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

 



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