Weekly Technical and Fundamental Analysis of Gold – March 31

In the first half of last week, global gold ignored the strength of the US dollar and started to rise to a very important level of $2200.

The strength of the global ounce of gold increased so much that it even broke its previous resistance levels and reached around the important level of $2,240.

As the entire market’s attention is focused on important reports next week such as the NFP news, the possibility of a technical correction before any further upward rally for global gold in the coming week is not unexpected at all.

Events of last week in the gold market:

Last Monday, with the start of the Forex trading week, the US dollar index, which had entered a corrective phase technically, caused the global ounce of gold to start its first working day powerfully (in fact, gold opened at $2165 and rose to around $2181).

Keep in mind that the US dollar index, known in the Forex market as DXY, is an indicator that evaluates the strength of the dollar against a basket of six other major international currencies.

However, on that same Monday, statements from some Federal Reserve officials prevented further increases in gold.

Raphael Bostic, president of the Atlanta Federal Reserve, said he expects the US central bank to reduce interest rates only once this year instead of three times. Lisa Cook, head of another branch of the Federal Reserve, added that reducing interest rates “too soon or too late” also poses risks to the US economy.

On Tuesday, global gold in London trading session managed to rise above the important level of $2200 for several consecutive times, but this rise turned into a decline in the New York trading session.

The main reason for the decline in gold from the peak of $2200 to $2167 was a technical correction and strong data from the United States, which we will discuss further.

According to the latest reports, durable goods orders in the United States in February increased by 1.4% monthly following a 6.9% decrease in January.

On Thursday, the global ounce of gold in the Tokyo trading session started to rise again towards the important level of $2200 without strong economic and fundamental news.

Interestingly, even hawkish statements from Federal Reserve officials could not push the dollar higher and gold lower. As a result, global gold managed to maintain itself around the important level of $2200.

For example, a prominent member of the Federal Reserve named Christopher Waller noted that the central bank is not in a hurry to lower interest rates.

He further emphasized that to help achieve the 2% inflation target on a sustainable path, the Federal Reserve may need to keep interest rates in the current range for a longer period.

Continuing on Thursday, the Bureau of Economic Analysis (BEA) of the United States announced that real GDP growth for the fourth quarter increased from 3.2% in the previous estimate to 3.4%.

Not long after, the weekly report on initial jobless claims in the US was released; according to the latest news, jobless claims for the week ending March 23 decreased to 210,000 (as you know, the lower this number, the stronger the US dollar becomes and vice versa).

Then came Friday, the day when the whole market was waiting for the important report on US personal consumption expenditures or PCE.

As we have mentioned before, this index is one of the key measures of inflation in America that Federal Reserve officials regularly monitor to determine their monetary policies.

On Friday, data released by the Bureau of Economic Analysis (BEA) showed that inflation in the United States, measured by the Personal Consumption Expenditures (PCE) price index on an annual basis, increased to 2.5% in February.

The announced figure was in line with market expectations, surpassing the 2.4% figure from January by 0.1%.

Additionally, the Core PCE, which excludes food and energy prices and is highly valued by Federal Reserve officials, increased annually to 2.8%. It is worth noting that this report aligns with economists’ predictions.

Important events next week in the gold market:

Looking ahead to the upcoming week in the gold market, it is expected to be one of the most important weeks in terms of fundamental news for global gold and other financial assets. This could potentially determine the course of the Federal Reserve’s interest rate policies.

On Monday, the Institute for Supply Management (ISM) in the United States is set to release the Purchasing Managers’ Index (PMI) report for American factories in March.

Economic analysts have forecasted that the main PMI headline will reach 48%; if for any reason the reported figure is 50 or higher, the initial market reaction will likely reflect a rapid growth in the US dollar.

One crucial component within this report is the Prices Paid Index, which is an inflationary factor.

After 8 consecutive months below the important 50 mark, the Prices Paid Index managed to stay above this critical level.

If for any reason the Prices Paid Index falls back below the important 50 mark (indicating a setback in factory output growth), it could challenge the dollar and put pressure on it, even if the main PMI headline is positive.

On Tuesday, the US Bureau of Labor Statistics (BLS) is scheduled to release the Job Openings and Labor Turnover Survey (JOLTS) report for February.

If the reported figure does not significantly differ from the 8.86 million in January, the market reaction will likely be neutral.

Wednesday will see the market waiting for the ADP Employment Change report and ISM Non-Manufacturing PMI data for the United States.

If for any reason the ADP Employment Change report is weak, traders and the overall market may start speculating that the US labor market, especially ahead of the NFP report on Friday, is weak.

Furthermore, towards the end of the trading day on Wednesday, during the US session, the market reaction to the Prices Paid Index or the inflationary component of the PMI services survey can be similar to the reaction to the PMI factories report on Monday

Finally, the BLS is set to release the US labor market report or NFP on the following Friday.

Economic analysts have predicted that the NFP for March is expected to increase from 200,000 in February to 275,000.

The important part of this report is that the predicted US unemployment rate remains constant at 3.9%. Additionally, it is expected that the monthly wage inflation, measured by changes in average hourly earnings, will increase from 0.1% to 0.3% monthly.

If you remember, in February when the NFP figure increased to 275,000 and exceeded market expectations, it caused a decline in the US dollar! The reason was that the January and December reports had been revised downwards.

Now, if the NFP for February exceeds market expectations again and no downward revisions are announced for previous reports, the US dollar will strengthen and global gold will at least experience downward pressure in the initial reaction to this news.

On the other hand, if the NFP figure is weaker than market expectations, the dollar will come under pressure and gold will continue its growth.

The well-known CME group tool is currently indicating that around 40% of market participants believe that the Federal Reserve will leave its interest rates untouched in June.

Important note: Don’t forget that if the jobs report on Friday shows strong numbers, traders (meaning that 40%) will not only abandon their speculation of interest rate cuts in June but will also consider a 75 basis point reduction for the current year 2024 even with doubts about Federal Reserve’s dot plot signals.

If this scenario plays out, global gold will experience a deep correction and the dollar will strengthen. Conversely, if the NFP figures are weak, the dollar will decline while gold maintains its strength.

Weekly technical analysis for gold:

The price floor and ceiling for gold last week were 2163 and 2236. If you open a daily gold chart right now and draw an RSI indicator, you will see that the indicator’s peak is moving upwards within the overbought zone and is showing a value of 76.

This means that bulls still have control of the market, but we should be prepared for a correction from its new historical peak at any moment.

Moreover, if you draw an ascending channel on the daily chart, you will notice that global gold has broken out of its upper channel boundary and is moving upwards.

Key support levels in global gold analysis:

If gold were to decline, the first significant support level would be around $2220. If gold breaches this area, the next important price level is $2210. If market bears push gold lower, the next key levels would be $2200 and $2190.

Key resistance levels in global gold analysis:

If gold were to increase, the first important resistance level would be $2240. If gold successfully crosses this area, the next key level would be $2250. If market bulls manage to push gold higher, the next resistance levels would be $2260 and $2270.

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!