Gold Price (XAU/USD) continues to oscillate with bearish momentum in Thursday's trading session despite being rejected at the level of $4,450. However, the overall trend is bullish because gold is still trading above its old breakout level of $4,380. This is a technical correction and not a reversal of the prevailing trend due to positive fundamentals, such as low inflation expectations in the US, lower yields on front-end Treasury bonds, and worries over the strength of the US dollar.
Gold Price Holds Above $4,380 as Buyers Defend Key Support. In terms of technical analysis, one can conclude that the asset is undergoing consolidation following the failure to sustain its bullish momentum past the level of $4,450. The spike experienced by the asset on Wednesday towards the resistance level failed to stand the test of time and resulted in some pullback on Thursday. Nonetheless, in spite of all that, the asset was able to hold above the level of $4,380 – a level of significance in technical analysis because of the fact that it can act as the first level of defense against any price action.
Softer US CPI Reduces Pressure on Gold Through Lower Yields US inflation numbers recently released have offered a favorable tailwind to precious metals. The Consumer Price Index largely met market projections and failed to offer an upside surprise that would have seen a rapid increase in US yields and tightened monetary policy by the Federal Reserve. This has put more pressure on short-dated yields and also made the US Dollar less favored, conditions that are beneficial to non-interest-bearing assets like gold. Even though the data did not weaken the dollar sufficiently to bring about a breakdown, it has been positive for the precious metal.
Federal Reserve Policy Outlook Keeps Gold in Focus The market is slowly rethinking its view on the future of the Fed's policy amid rising significance of economic and fiscal factors. According to analysts from DBS Group Research, the recently released CPI report was sufficiently neutral to keep the Dollar Index within its current trading range and not provide any clear breakout. On the other hand, problems related to the fiscal status of the USA are gaining importance among the factors influencing foreign exchange markets. Poor fiscal performance could limit the yield superiority of US financial instruments and weaken the Dollar's attractiveness in the long run. The prevailing situation is favorable for gold due to ongoing uncertainty about economic and fiscal policies.
Gold Technical Analysis Shows Bullish Momentum Is Cooling On the four-hour timeframe, gold is seeing an organized correction following oversold levels on the way up. The RSI has dropped to around 58.81, still significantly above the neutral 50 level, suggesting that there is still enough upward momentum despite the temporary retreat. The MACD has moved a little bit below the zero line, implying that the upward momentum has lost some strength, but still no significant bearish reversal signal has emerged from the indicator yet.
Key Gold Support and Resistance Levels to Watch Resistance will remain constant at $4,450, considering the Wednesday high and the resistance level that will be crucial for the buyers. Should the resistance level be surpassed, then it means the trend will continue upwards with a test of the high of $4,600 witnessed towards the end of May. With regard to the downward movement, the support level is expected at $4,360, as this is also the low reached on Tuesday and Wednesday. The breaking of the support level would result in a pullback to $4,230 and $4,200-$4,220, respectively.
Gold Outlook: Bullish Structure Remains Intact Above Key Support In general, the outlook on gold continues to be cautiously positive as long as the XAU/USD pair continues to trade above the $4,360-$4,380 area. The consolidation period is not the end of the current trend; rather, it is just a pause in the short-term momentum of the trend. For the gold price to move higher towards the $4,600 mark, buying momentum will have to gather more strength and trade above the $4,450 level, while selling momentum will have to trade below the $4,360 level.
