May 29, 2024: The gold price (XAU/USD) experienced a downturn on Wednesday, ending a three-day winning streak as the US Dollar (USD) made a modest recovery. This shift was driven by hawkish remarks from several Federal Reserve (Fed) officials and stronger-than-expected US economic data, which have dampened expectations of a Fed rate cut in September. The resulting boost in the USD has consequently put pressure on the USD-denominated gold price.
Economic and Geopolitical Influences
Despite the recent dip, geopolitical tensions and uncertainty continue to provide a supportive backdrop for gold as a safe-haven asset. Additionally, increasing demand from central banks is expected to sustain higher gold prices in the near term.
Gold traders are closely monitoring the release of the Fed’s Beige Book and a speech by Fed’s John Williams on Wednesday. The spotlight, however, will be on the US Core Personal Consumption Expenditures Price Index (Core PCE) due on Friday, which is projected to increase by 0.3% month-on-month and 2.8% year-on-year for April. Persistent inflation could delay any potential Fed rate cuts, further impacting gold prices due to the increased opportunity cost associated with higher interest rates.
Daily Market Movers and Technical Analysis
- Geopolitical News: Israeli Prime Minister Benjamin Netanyahu has committed to continuing the conflict against Hamas, following international condemnation of an airstrike that resulted in significant casualties in Rafah, according to BBC reports.
- Gold ETFs: The World Gold Council noted a net outflow of 11.3 metric tonnes from global physically-backed gold exchange-traded funds (ETFs) last week.
- Market Forecasts: UBS analysts have revised their gold price forecasts, expecting it to reach $2,500 an ounce by September and $2,600 by year-end, up from initial estimates of $2,400 and $2,500, respectively.
- Economic Data: The Conference Board reported a slight improvement in consumer confidence for May, with the index rising to 102.0 from 97.0 in April, surpassing the expected 95.9.
- Fed Remarks: Fed Governor Michelle Bowman expressed support for either delaying the start of quantitative tightening or implementing a more gradual tapering process. Meanwhile, Fed Minneapolis President Neel Kashkari suggested waiting for significant progress on inflation before considering rate cuts, predicting no more than two rate cuts in 2024.
Technical Outlook
Technically, despite recent losses, gold’s bullish outlook remains intact as it trades above the key 100-day Exponential Moving Average (EMA) on the 1-hour chart. The 14-day Relative Strength Index (RSI) at the neutral 50-midline suggests potential consolidation in the short term.
Key Levels to Watch:
- Resistance: The first resistance level is at the upper boundary of the Bollinger Band at $2,427. A sustained rally could push the price towards the all-time high of $2,450. Breaking above this level might target the psychological $2,500 mark.
- Support: On the downside, the initial support is at the May 24 low of $2,325. Below this, the next level is at the $2,300 round figure. Continued selling pressure could expose the lower limit of the Bollinger Band at $2,277, followed by the 100-day EMA at $2,222.
