Technical and fundamental analysis of Gold – May 19
If you switch your timeframe to weekly, you will notice that the global gold ounce, after two weeks of decline, has been green and upward for the second consecutive week and has managed to fly above $2422.
In fact, the global gold ounce was able to increase by about 2.30% in the week ending May 17.
Now, all traders and gold investors are looking forward to the statements and opinions of Federal Reserve members in May.
This helps them understand the approximate time of the Federal Reserve’s policy shift from hawkish to dovish and adjust their trading positions more accurately.
Events of the past week in the gold market:
Global gold opened on Monday, May 6 at $2360, went down to $2332, went up to $2364, and finally ended its trading day at $2336.
It can be said that the global gold ounce was under selling pressure from market bears last week and on Monday, experiencing a decline of over 1%.
However, due to the rise of global gold in the second half of last week, Monday’s decline in gold was more of a correction due to the lack of fundamental catalysts than anything else.
Then Tuesday arrived; the day the market awaited the US Producer Price Index (PPI) report.
Data released by the US Bureau of Labor Statistics on Tuesday showed that the Producer Price Index (PPI) rose annually in April by 2.2%.
It is worth noting that this figure was better than the previous month (1.8% growth in March) and in line with economic analysts’ forecasts.
The immediate reaction of the US dollar index to the PPI news was a decline in the dollar and a rise in global gold; in fact, the global ounce opened at $2336 and rose to nearly $2360.
As you are aware, on that same Tuesday, the market awaited a speech by the Chairman of the Federal Reserve.
Jerome Powell, Chairman of the Federal Reserve, during his speech at the annual general meeting of the Foreign Bankers Association late Tuesday of last week, pointed out that PPI data is contradictory. He reiterated that restrictive policies or contraction may take longer than expected to further reduce inflation.
In fact, this dovish statement by the Federal Reserve Chairman limited losses for the US dollar and restricted the rise of global gold.
Then Wednesday arrived; the day the market was waiting for a very important report on US consumer inflation, or CPI.
On the past Wednesday , May 17, the BLS reported that annual inflation in the United States, measured by the Consumer Price Index (CPI), decreased from 3.5% in March to 3.4% in April.
At the same time, the annual core inflation, which excludes food and energy, was also 3.6%, in line with market expectations and analysts’ forecasts.
Additionally, both monthly inflation and core monthly inflation, or Core CPI, were reported at 0.3%.
The yield on the US ten-year Treasury bonds immediately dropped over 2% after the US inflation news was released, allowing global gold to rise to around the important level of $2400.
Meanwhile, other data from the United States showed that retail sales in April remained unchanged at the same figure of $705.2 billion.
An important and interesting point was that senior officials of the Federal Reserve in the second half of last week took a cautious stance, which helped reduce losses for the dollar and allowed the dollar to stay ahead of its competitors.
This exact important and vital factor led global gold to correct itself to around $2371 on the past Thursday.
For example, John Williams, President of the New York Federal Reserve, stated that he does not see a need to lower interest rates in the short term.
In fact, Williams said in an exclusive interview and personal statement to Reuters: “After several months of disappointing data, we saw a positive turn.”
Thomas Barkin, President of the Richmond Federal Reserve, also told CNBC that the latest CPI data shows inflation is not where the Federal Reserve wants it to be.
Finally, Atlanta Federal Reserve President Raphael Bostic also said: “If we see sustained inflation decline, lowering interest rates from late 2024 would be appropriate.”
Overall, financial markets’ performance in the first half of the last working day of the week, namely Friday, was declining, but as capital flows flooded into the market due to approaching the end of the calendar week, gold rose.
In fact, global gold managed to reach its highest level in the past month, above the important level of $2422, and ended its working week at a price of $2414.
Events of the next week in the forex and gold markets:
Next Monday, May 20, several senior members of the Federal Reserve of America named Bostic, Waller, Barkin, Jefferson, and Mester are scheduled to speak for the market and traders.
On Tuesday, May 21, US Treasury Secretary Yellen is scheduled to speak to the market.
Then Powell, Barkin, Williams, Brainard and Bostick are also expected to address investors.
On Wednesday of next week, May 22nd, initially two reports on existing home sales and crude oil inventories will be released, followed by the important May Federal Reserve meeting.
On Thursday, May 23rd, the market is set to observe two important news items; first at 4 PM the weekly initial jobless claims report and then at 5:15 PM the Purchasing Managers’ Index (PMI) for services and manufacturing for May. Both of these reports are among high-impact news that can affect the dollar and other financial assets.
Since the number 50 is crucial for both manufacturing and services PMIs, if for any reason the reported figure is below 50 – indicating a contraction and shrinking of economic activities in the US – the US dollar will immediately come under selling pressure.
This important factor could lead to global gold strengthening once again and continuing its upward trend.
Conversely, if for any reason the reported figure is above 50 – indicating growth and expansion of economic activities in the services and manufacturing sectors in the US – the US dollar will immediately strengthen and move upwards.
This key and vital factor could lead to a correction in global gold on Thursday.
According to the well-known CME Group tool, up to this moment around 33% of the market believe that the Federal Reserve will keep its interest rates unchanged in September without any slightest change.
Although it is unlikely that Federal Reserve officials will say whether September is a suitable time for rate cuts or not, their views on the economic outlook and inflation-related developments can affect the chance of rate cuts.
If US Federal Reserve policymakers announce any shift in their current banking policies before observing more economic data such as employment and inflation, investors will be skeptical about the timing of rate cuts starting from September.
This important factor could help the US dollar remain resilient against its competitors and limit further gold gains.
If Federal Reserve officials express concerns about expanding conditions in the labor market or increasing uncertainty about the economic growth outlook, the yield on US Treasury bonds may decrease and allow XAU/USD to continue its upward movement.
As you are aware, the Federal Reserve is scheduled to release the minutes of its important meeting this Wednesday.
In this regard, investors will analyze policymakers’ discussions on interest rate outlook in the face of strong inflation readings in the first quarter.
If for any reason Federal Reserve policymakers even hint that interest rates are expected to be lowered only once in 2024, the dollar will start to strengthen.
However, if the meeting minutes in May indicate that investors are expecting a one-time increase in interest rates, gold may continue its upward trend.
Weekly technical analysis of gold:
Weekly technical analysis of gold shows that the price floor and ceiling last week were 2332 and 2422.
If you open a daily gold chart now and draw an RSI indicator, you will see that the indicator is currently pointing upwards and showing a value of 65. This means that bulls still have control and the daily trend of gold remains bullish.
Additionally, if you draw an ascending channel on the daily chart, you will notice that global gold is trading slightly above its ascending channel.
Key support levels in global ounce analysis:
If gold were to decline, the first significant support level would be the important area of $2400. If gold breaks below this area, the next important price level would be $2390. If market bears push gold lower, the next important levels would be $2380 and $2370.
Key resistance levels in global ounce analysis:
If gold were to increase, the first important resistance level would be $2422. If gold successfully surpasses this area, the next important level would be $2431. If market bulls manage to push gold higher, the next resistance levels would be $2440 and $2450.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
Happy trading
may the pips be ever in your favor!
