Last week gold resumed its upward trend after a long period of consolidation and downward pressure. Thanks to last week’s push, gold once again surpassed €70 per gram before a strong response at a historic diagonal resistance level. Despite this, some signs of a possible resumption of the upward trend are starting to emerge thanks to a slowdown in interest rates even as investors have their eyes on Friday’s US inflation data.
- Last week the value of gold slipped -0.36% and, despite a rally above the €71 per gram level, the week ended below €70 per gram.
- From a Forex technical analysis point of view, gold’s rapid upward rally towards the absolute ceiling was abruptly interrupted by the horizontal resistance at €72.15 per gram, near which the precious metal made a trend reversal and it started to move towards its support level at €68.25 per gram. Subsequently, gold’s uptrend regained strength until it returned above the 50-day moving average and tested the diagonal resistance level.
- From a fundamental point of view, however, the value of gold has been strongly influenced by central banks’ decisions to cut interest rates and geopolitical news, while from a macroeconomic point of view investors are awaiting data on US inflation next Friday, which will provide crucial information regarding the Federal Reserve’s next steps. Follow top brokers for more analysis on today’s important events.
Some Central Banks Start Cutting Interest Rates and Gold Breathes a Sigh of Relief!
During the last few weeks many central banks have started to move in the direction of an expansionary monetary policy, giving much more strength to the trend of gold, helping a possible upward recovery. In recent weeks, the ECB, the Canadian central bank and the Swiss National Bank have all made a 25 basis point cut, reducing interest rates and increasing demand for gold.
On the American level, however, everything still seems stable with the first cut during the last quarter of 2024 but, despite this, investors have their eyes focused on the announcement of American PCE inflation on Friday afternoon, which will be fundamental to understand how US monetary policy could evolve.
Investors expect the reduction in inflation to resume with the first decrease of 0.1% after 3 months of stagnation. Such an event would be very positive news for gold as it would completely erase the possibility of a new interest rate increase in the US and as it would continue to reduce interest rates on US Treasury bonds , in turn increasing demand for gold. Experience this technical analysis by choosing your ideal broker from our list of market-leading XAU/USD brokers in Italy.
Gold Continues Rally but Reports Strong Slowdown
From the gold technical analysis, the precious metal continued its upward rally that began during the second week of the month until reaching €71 per gram at the diagonal resistance zone. Despite this, once this level was reached, the price of gold signaled a strong trend reversal, forming a Japanese candlestick structure called “tweezers” which in this case could signal a trend reversal in the short term.
Despite this, neither the EFI nor the Relative Strength Index signal a bearish divergence, so the possibility of observing a rapid trend reversal and a collapse to the support level at €68.25 per gram appears to be a relatively unlikely scenario.
Furthermore, the Moving Average Convergence Divergence indicator has just completed a bullish crossover, a signal that communicates a reversal of the upward trend in the short term; therefore, the gold trend in 2024 could return to being bullish.
Gold Weekly Outlook
- Current resistance level: €71.10 per gram, identified by the historic key diagonal level that has characterized gold’s upward trend over the last 4 years.
- Current support level: €68.24 per gram, identified by the confluence of support formed by the key horizontal level and the 50-day moving average.
- Upside target: €72.15 per gram, the resistance zone at which the value of gold reversed its trend after reaching its absolute maximum.
- Downside target: €68.24 per gram.
Considering the current uptrend of gold and the crossover of the MACD indicator, the short-term scenario for gold appears to be relatively positive with the possible continuation of the uptrend. Despite this, in the very short term a period of consolidation may first be necessary while waiting for the data regarding American inflation which will be announced on Friday afternoon at 2.30 pm Italian time.
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