Daily Analysis on Gold: Tuesday, 20 August 2024

20 авг.

“Things to keep an eye on amidst the uncertainty in the gold market”


Last Monday, on August 19, 2024, the price of gold experienced a significant drop, falling from its peak of around $2,510 per ounce to approximately $2,485 per ounce. This decrease was due to some investors closing their positions in order to lock in profits, given the uncertainty in the gold market.

This shift resulted from varying expectations about the Federal Reserve's interest rate policy, as well as concerns about the strength of the labor market and the growing demand for secure assets. Initially, it was expected that the Fed would reduce interest rates by 50 basis points, but this was revised to 25 basis points following the release of favorable US economic data last week.

This adjustment followed lower-than-expected results from inflation indicators such as CPI year-over-year and Core PPI month-over-month.

According to the CME FedWatch Tool, investors are now predicting a 77.5% likelihood that the Federal Reserve will only cut interest rates by 25bsp.

The data indicates a decrease in inflation, bringing it closer to the Fed's 2% target. However, non-farm employment rates (Non-Farm Payrolls) and average hourly earnings (Average Hourly Earnings m/m) continue to decline, signaling weakness in the US labor market.

Amidst geopolitical uncertainty, reports suggest that US Secretary of State Antony Blinken is presently in the Middle East to facilitate ceasefire negotiations with Gaza. However, ongoing protests from Israel and conflicting statements from Hamas and Israel are adding to concerns. Additionally, worries about potential violence between Ukraine and Russia persist following Ukrainian forces entering Russian territory.

This data underscores the uncertainty in the gold market. Investors are now eagerly anticipating Fed Chair Powell's speech and the release of FOMC minutes later this week for further insights into monetary policy. This should offer clarity on the future direction of the gold market.Please note down the following information:

On the preceding Monday of August 19, 2024, the price of gold experienced a notable decline from its peak value of approximately $2,510 per ounce to about $2,485 per ounce. This downward movement occurred as certain investors opted to close their positions to safeguard profits amid the prevailing uncertainty in the gold market.

The observed discrepancy stemmed from differing outlooks regarding the Federal Reserve's stance on interest rates, as well as concerns about the labor market's robustness and the escalating demand for secure assets. Initially, an expectation had been established for a 50 basis points reduction in interest rates by the Fed, but subsequent to the release of upbeat US economic data last week, this projection was revised downward to a 25 basis points reduction.

This adjustment followed a subpar performance in inflation metrics, such as the year-over-year Consumer Price Index (CPI) and the month-over-month Core Producer Price Index (PPI).

Based on the CME FedWatch Tool, market participants currently project a 77.5% likelihood of the Federal Reserve reducing interest rates by a mere 25 basis points.

The data reflects a decline in inflation, nudging it closer to the Fed's 2% target. However, indicators such as non-farm employment rates (Non-Farm Payrolls) and average hourly earnings (Average Hourly Earnings m/m) continue to diminish, signifying weakness within the US labor market.

Amid geopolitical uncertainties, reports indicate that US Secretary of State Antony Blinken is presently undertaking efforts in the Middle East to facilitate ceasefire negotiations with Gaza. However, ongoing protests from Israel and conflicting statements from Hamas and Israel are contributing to concerns. Additionally, apprehensions about potential hostilities between Ukraine and Russia persist after Ukrainian forces breached Russian borders.

The aforementioned data underscores the ambiguity prevailing in the gold market. Market participants are anxiously awaiting insights into monetary policy from Fed Chair Powell's forthcoming speech and the release of FOMC minutes later this week, which are expected to bring lucidity to the future trajectory of the gold market.

Technical Analysis
XAUUSD: 4 Hours Timeframe

Please remember the following analysis of gold prices:

Gold prices attempted a downside reversal using a Falling Method candlestick pattern, but this failed (number 1 in the picture).

Subsequently, the market gained momentum and broke the downside trend, driven by strong buying pressure (figure number 2 in the picture).

Upon retesting the previous price level around 2,480, there was a clear rejection of that price, confirming the strength of the buying momentum (number 3 in the picture).

After reaching an all-time high, the market formed a bearish reversal pattern (Bearish Engulfing No. 4 in the picture). Yet, strong buying activity was observed after the price dropped to 2,485, as indicated by a price rejection (number 5 in the picture).

This indicates that the market might be in a sideways state, awaiting clarity from economic data to determine its next direction.

For a clearer picture, traders should wait for the price to break out of the previous high at approximately 2,510 or the lowest point at about 2,485 before considering entering a trade.

Within the one-hour timeframe, traders might notice a Head & Shoulders pattern. With the support of a technical indicator like the Moving Average, traders could consider opening a sell position around the price level of 2,502.5, breaking the bearish reversal pattern on the four-hour timeframe. Setting the stop loss at around 2,516 and the take profit point near 2,475, an important price level that the market has tested and coincides with the Moving Average.In the analysis of gold prices, it is evident that the market previously endeavored to establish a downside reversal point through a Falling Method candlestick pattern, which ultimately proved unsuccessful (illustrated as number 1 in the corresponding visual aid).

Subsequently, the market exhibited a resurgence, breaching the downside trend, driven by robust buying pressure (designated as figure number 2 in the visual aid).

Upon the market's reevaluation of the previous price level at approximately 2,480, a conspicuous rejection of this price level ensued, affirming the robustness of the buying momentum (number 3 in the visual aid).

Subsequent to reaching an all-time high, the market featured a bearish reversal pattern (Bearish Engulfing No. 4 in the visual aid). Nevertheless, pronounced buying activity materialized subsequent to a decline to the price level of 2,485, as signaled by a price rejection (number 5 in the visual aid).

This indicates the potential for the market to be in a lateral phase, awaiting fundamental input to ascertain its subsequent trajectory.

For clarity, it is advisable for traders to await a price breakout above the preceding high at approximately 2,510, or below the low point at roughly 2,485 before contemplating entry into a trading position.

Within the one-hour timeframe, traders could potentially discern a Head & Shoulders pattern. Utilizing a technical indicator such as the Moving Average, traders might opt to initiate a sell position close to the price level of 2,502.5, thereby breaching the bearish reversal pattern on the four-hour timeframe. Placing the stop loss at approximately 2,516 and setting the take-profit target at around 2,475 – a significant price level tested by the market and coinciding with the Moving Average.