Gold Price Holds the Range, As MAs Keep the Lid On
Over the last two weeks, the Gold price has been trading in a range, with the highs getting lower as the 200 SMA pushes XAU down.
Over the last two weeks, the Gold price has struggled to regain its upward trajectory. After reaching a record high of $2,450 on May 20, the XAU/USD pair reversed lower and has since been trading in the lower half of the $2,300 range, with highs continuously pushed down by moving averages.
Gold prices remained under pressure during the Asian session yesterday, falling to a three-week low of $1,915 per ounce. However, the price rebounded after the release of softer-than-expected US ISM manufacturing and ISM manufacturing prices data, which indicated that activity in the manufacturing sector remains in recession and inflation is falling, raising the odds of a Federal Reserve rate cut in the coming months.
Gold Chart H1 – The 200 SMA Is Acting As Resistance
Key Factors Influencing Gold Prices:
- Technical Indicators:
- 200 SMA Resistance: The 200-day Simple Moving Average (SMA) has repeatedly stopped upward momentum, forming a bearish reversal pattern.
- Lower Highs: The trend of lower highs indicates sustained selling pressure and bearish sentiment in the market.
- US Economic Data:
- ISM Manufacturing Data: Softer data suggested weaker economic activity, which initially provided some support for gold as investors anticipated a potential rate cut by the Federal Reserve.
- ISM Manufacturing Prices: The decline in manufacturing prices pointed to easing inflation, which also supported the case for a Fed rate cut, momentarily boosting gold prices.
- Geopolitical Developments:
- Middle East Concerns: Easing geopolitical concerns in the Middle East, including optimism over a Gaza ceasefire proposed by US President Joe Biden, have reduced gold’s appeal as a safe-haven asset.
- China’s Economic Data:
- Caixin Manufacturing PMI: The increase in China’s Caixin Manufacturing PMI for May bolstered investor confidence and improved risk sentiment in financial markets, negatively impacting demand for safe-haven assets like gold.
Trading Strategy:
Given the current market dynamics and technical indicators, we decided to open a sell position on gold. The key factors for this decision include:
- Bearish Technical Patterns: The formation of bearish reversal patterns and resistance at the 200 SMA.
- Improved Risk Sentiment: Positive economic data from China and easing geopolitical tensions are improving risk sentiment, reducing the demand for safe-haven assets.
- Anticipation of a Fed Rate Cut: Although softer US economic data initially supported gold, the overall improved risk sentiment and easing inflation are likely to weigh on gold prices in the near term.
Outlook:
- Downside Risks: If gold prices continue to face resistance at key moving averages and geopolitical tensions remain subdued, we might see further downside.
- Key Support Levels: Watch for support around the $1,900 mark, with potential further declines if this level is breached.
- Market Sentiment: Monitor changes in global risk sentiment and any new economic data that could influence expectations of Federal Reserve policy changes.
In summary, the price of Gold has shown some volatility. The prevailing factors suggest a bearish outlook in the short term as highs get lower, with last week’s high around $5 lower than the previous high and yesterday’s was $5 lower again than last week’s high. Improved risk sentiment and technical resistance levels are likely to keep upward momentum in check, so we decided to open a sell Gold signal just below the 200 SMA on the H1 chart.
Gold Live Chart
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