Gold Price Dips to $2,420: Can Fed Rate Cuts Rekindle Its Rally?

In recent trading, gold prices have declined, slipping to approximately $2,421 with a dip to an intra-day low of $2,419.44.

This downtrend was largely influenced by a robust U.S. labour market report that exceeded expectations, boosting investor confidence and diminishing the allure of gold as a traditional safe-haven asset.

Yet, this drop might be temporary, as anticipation grows around potential Federal Reserve interest rate cuts starting as early as September.

Economic Indicators and Their Impact on Gold

Thursday’s labor data signaled a decrease in fears of an imminent recession which spurred a surge in U.S. equity markets, further impacting gold prices.

Initial jobless claims decreased by 17,000 to 233,000 in the week ended Aug. 3, according to Labor Department data released Thursday.

Mike McKee reports https://t.co/7JKAN14jPW pic.twitter.com/INLuTAMW3Q

— Bloomberg TV (@BloombergTV) August 8, 2024

Despite this, gold may still find some support from market speculations on future Fed actions, including a forecasted 25-basis point reduction in interest rates come September, and even whispers of a 50-basis point cut.

Simultaneously, a dovish Fed stance has suppressed U.S. Treasury yields, contributing to a weaker dollar, which historically benefits gold prices.

Notably, initial jobless claims for the week ending August 3 registered at 233,000—better than the anticipated 240,000 and below the prior week’s 249,000, providing a bullish sign for the broader economy but a bearish scenario for gold in the short term.

Geopolitical Dynamics and Gold Demand

Increasing geopolitical tensions in the Middle East have recently become a significant gold demand driver.

The assassination of Hamas chief Ismail Haniyeh in Tehran heightened risks of military responses from Iran towards Israel, fostering uncertainty that benefits gold.

Furthermore, aggressive military operations by Israel in Gaza have escalated the stakes, with significant casualties reported and forthcoming ceasefire talks scheduled for August 15 involving the U.S., Egypt, and Qatar. Such events underscore gold’s role as a sanctuary during geopolitical strife.

Gold prices jumped 1.7% and then stabilized on Friday due to geopolitical tensions and potential lower US interest rates. The market is being influenced by events in Ukraine and the Middle East, with traders watching the CFTC report later today for more insights.

— Wall Street News (@wlst_news) August 9, 2024

Gold Price Forecast: Technical Outlook

Gold (XAU/USD) is trading at $2,422.70, showing a slight decrease of 0.24%. The 4-hour chart reveals a neutral position, with gold hovering above the pivot point of $2,412.90 and just below the immediate resistance at $2,431.41.

The Relative Strength Index (RSI) stands at 55, indicating a balance between potential gains and losses.

The 50-day Exponential Moving Average (EMA) at $2,417.15 serves as significant support, suggesting bullish possibilities if gold stays above this mark.

However, failure to surpass $2,431.41 might lead gold to drop towards $2,380.82. A further decline could reach support levels at $2,354.48 and $2,335.02, important zones for potential purchases.

Conversely, breaking above $2,431.41 might propel gold towards higher resistance levels at $2,452.64 and $2,477.89, essential for those aiming for prolonged gains.

Traders might consider a strategic entry near $2,413, setting a profit target at $2,447 and a stop loss at $2,398 to manage risk effectively.