Weekly Technical and Fundamental Analysis of Gold – April 7th
Last week, global gold gathered momentum and rose by approximately 4.35%. If you change your timeframe to weekly, you will notice that this is the third consecutive week that the global gold ounce has been on the rise.
An important point is that in the past week, global gold once again successfully reached new highs and proudly touched the $2300 level.
Now all eyes are on a very important report, the Consumer Price Index (CPI) in the United States. The result of this report will not only affect gold and the dollar but also impact the continuation of the Federal Reserve’s policies regarding starting interest rate reductions or maintaining them at current levels for a longer period.
Events of the past week in the gold market:
The global gold ounce opened last Monday at a price of $2233, went a few pips down, and then started to increase to around $2265. The reason for the increase in the price of gold on the first working day of the week was a weaker-than-expected report on the Personal Consumption Expenditures (PCE) index in the United States last Friday.
After the release of the PCE report, the US dollar index faced demand issues, leading to a decline in global gold prices.
However, it did not take long for equations to change in the New York trading session on Monday.
If you remember, the market was waiting for an important report on the Purchasing Managers’ Index (PMI) from ISM in the United States.
According to the latest reports, business activities in the US manufacturing sector expanded well in March. The ISM Manufacturing PMI increased from 47.8 in February to 50.3 in March 2024.
It is worth mentioning that the announced figure was better than the market’s prediction of 48.4%.
Other details of this report showed that the employment index increased from 45.9 to 47.4, new orders index increased from 49.2 to 51.4, and the prices paid index or inflation component of this report also increased from 52.5 to 55.8.
After the release of this report, the dollar started to rise, which prevented further increases in gold prices.
Then on Tuesday, in the absence of high-impact economic data, global gold started to increase (1.29+ percent).
On Wednesday, the day when the market was waiting for the ISM Services PMI report.
On Wednesday, data from the United States showed that the ISM Services PMI decreased from 52.6 in February to 51.4 in March.
Most importantly, the Prices Paid Index or the inflation component of this survey decreased from 58.6 to 53.4, indicating a softening of input inflation in the US services sector.
As the US dollar index came under downward pressure, global gold regained strength and moved upwards again. In fact, last Wednesday was the eighth consecutive day that gold was green and on the rise.
On Thursday, gold continued its upward trend in the Asian trading session and before technical corrections and breaking its winning streak, it set its historical record high of $2305.
However, in the US trading session, the only thing that caused gold to turn red and make some corrections was the hawkish statements of Federal Reserve officials, which helped the dollar maintain its strength against its rivals.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis who had predicted two rate cuts for the current year 2024, said: now he is thinking if inflation does not decrease as it should, can the Federal Reserve actually cut interest rates this year or not!
Furthermore, Thomas Barkin, President of the Federal Reserve Bank of Richmond also pointed out that aligning current inflation levels with the forecasts that the Federal Reserve has made for interest rate cuts is difficult.
Finally, on Friday arrived; the day when the whole market was waiting for the important US jobs report or NFP.
The Bureau of Labor Statistics (BLS) reported that non-farm payrolls (NFP) in the United States increased by 303,000 in March!
It is worth noting that the market was waiting for a figure of 200,000, which was significantly higher than the economic analysts’ predictions.
In addition, the figure of 275,000 for February was revised down to 270,000, and the NFP figure for January increased from 229,000 to 256,000 in the latest review.
Other details of this report showed that the unemployment rate decreased from 3.9 percent to 3.8 percent, and the labor force participation rate improved from 62.5 percent to 62.7 percent.
Finally, annual wage inflation, measured by changes in average hourly earnings, decreased from 4.3 percent to 4.1 percent as per market forecasts.
The US dollar index initially rose to around 104.70 after very positive and strong labor market data, then started to decline to around 104.28. Gold also ignored the strength of the dollar and soared to the important level of $2330.
A rare event occurred last week regarding the usually negative relationship between gold and the yield on 10-year US Treasury bonds, which was very weak.
The yield on 10-year US Treasury bonds rose above 4.4 percent for the first time since November 2023, but global gold ignored this important development!
The main reason for this event was the increase in geopolitical tensions in the Middle East.
After the killing of seven Iranian officers in a suspected Israeli airstrike on the Iranian Embassy compound in Syria early last week, Iran pledged to retaliate against Israel. This important factor has heightened concerns about deepening and prolonging conflicts in the Middle East.
In addition to this issue, there are speculations in the market that China wants to liquidate its holdings of US Treasury bonds and replace them with gold.
In fact, this speculation could justify the continued increase in the price of gold while the yield on US Treasury bonds also rises, but due to the lack of available information, confirming or rejecting this theory is difficult.
It is expected that the Chinese will make changes to their central bank reserves, which will likely take effect from mid-May.
It is worth noting that the World Gold Council reported on March 13 that the People’s Bank of China (PBoC) announced an increase of 22 tons in its gold reserves in February.
Events in the forex and gold markets next week:
The United States is not expected to release any important and impactful news on Monday and Tuesday , coinciding with the start of the forex trading week. Therefore, all eyes will be on Wednesday. On Thursday, the US Bureau of Labor Statistics is set to release the US inflation report for March.
Economic analysts have predicted that both monthly CPI and Core CPI will increase by 0.3 percent.
If for any reason the US core monthly inflation exceeds 0.3 percent, the US dollar will immediately strengthen, causing the global gold ounce to correct.
The second scenario is if the US core monthly inflation decreases from 0.3 percent to 0.2 percent. In this case, the US dollar will weaken as speculation about the start of interest rate cuts from June encourages this trend.
On Thursday, the BLS is set to release an important report on PPI, or the Producer Price Index.
It is worth noting that historically and in the past, traders did not react to the US PPI report, but the two previous reports have sparked significant reactions. If you recall, the US PPI increased by 0.6 percent in February.
Keep in mind that a strong similar growth in the monthly producer inflation from the US can help expectations for consumer inflation to remain steady, which means a stronger US dollar.
On the same Thursday, the European Central Bank (ECB) is also set to hold its important session to determine bank interest rates.
This session is not expected to have an impact on the value of gold prices, but any dovish comments (meaning towards interest rate cuts) can lead capital from the Euro to flow towards the US dollar.
If this happens, it means the US dollar will strengthen, causing difficulties for the global gold ounce to continue its upward trend – at least on Thursday – unless news of war from the Middle East reaches our ears!
Finally, on Friday and during the Asian trading session, traders will be waiting for China’s trade balance report; the world’s largest gold consumer. Traders and investors will closely follow this report.
If for any reason these data indicate an improvement in economic growth prospects in China, gold can benefit from it.
Remember that investors will also keep an eye on geopolitical developments and the opinions of Federal Reserve officials.
Further escalation of tensions in the Middle East can support the upward trend of XAU/USD without considering the overall performance of the US dollar.
Weekly technical analysis of gold:
The price floor and ceiling of gold in the past week were 2228 and 2330.
If you open the daily gold chart right now and draw an RSI indicator, you will see that the peak of this indicator is moving upwards within the overbought zone and showing a value of 82.
This means that the bulls still have control, but we should be prepared for a correction from its new historical peak at any moment.
Moreover, if you draw an upward channel on the daily chart, you will notice that global gold has broken out above its channel ceiling and is moving upwards.
Key support levels in the analysis of global gold ounce:
If gold is to decline, the first significant support level will be around $2320. If gold breaks below this level, the next key price level is $2310. If market bears push gold lower, the next important levels will be $2300 and $2290.
Key resistance levels in the analysis of global gold ounce:
If gold increases, the first important resistance level will be $2340. If gold successfully passes through this level, the next key level will be $2350. If market bulls manage to push gold higher, the next resistance levels will be $2360 and $2370.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
Happy trading
may the pips be ever in your favor!
