Gold appears to be forming a bearish Head-and-Shoulders (H&S) price pattern, typically indicative of a market top and a potential trend reversal. This H&S pattern on Gold has clearly defined shoulders (labeled “S”) and a head (labeled “H”). The “neckline” of the pattern is evident at the $2,279 support level (red line). Declining trade volume throughout the pattern’s development further supports its formation.
A decisive break below the $2,279 neckline would confirm the H&S pattern and likely trigger downside targets. The first, more conservative target is $2,171, calculated using the 0.618 Fibonacci ratio of the pattern’s height extrapolated downward from the neckline. The second target is $2,106, representing the full height of the pattern extrapolated downward.
Conversely, a break above $2,345 would invalidate the H&S pattern, potentially signaling a continuation higher with an initial target at the $2,450 peak.
FUNDAMENTAL OVERVIEW
Gold (XAU/USD) is trading slightly higher on Friday, hovering just above the $2,300 mark during the early European session. Asian markets showed mixed performance overnight, while US economic signals remain ambiguous, especially regarding interest rates, a key driver for Gold prices.
Gold has been range-bound, reflecting the uncertainty in the market. Conflicting signals about the future course of US interest rates have left traders in limbo. Although economic data suggests a disinflationary trend that could lead to lower interest rates, central bankers remain cautious. Lower interest rates typically boost Gold by reducing the opportunity cost of holding the non-yielding asset, but the timing and extent of future rate cuts remain unclear.
The disinflationary US Producer Price Index (PPI) data released on Thursday added to the evidence of easing inflation, hinting that the Federal Reserve (Fed) might cut interest rates soon. However, this data followed the Fed’s revision on Wednesday, reducing the expected number of 2024 rate cuts from three to one. Fed Chairman Jerome Powell also downplayed the significance of the cooler-than-expected May Consumer Price Index (CPI) data, emphasizing a data-dependent approach.
Gold prices briefly rose over half a percent to $2,342 following the disinflationary CPI release but retreated after the Fed’s cautious stance. The robust US Nonfarm Payrolls (NFP) figures, reflecting a strong labor market and rising wages, could put upward pressure on inflation, potentially keeping interest rates high.
Gold faced additional pressure after the People’s Bank of China (PBoC) halted gold purchases between the end of April and May, the first pause in 18 months, suggesting a potential price cap. However, Citibank analysts highlight continued strong consumer demand for Gold in China, which could support higher prices.
Overall, the outlook for Gold remains mixed as traders await the next significant US data release on Friday, the preliminary Michigan Consumer Sentiment Index for June.
