Gold prices experienced a setback in their recent recovery on Tuesday, as the demand for the US Dollar regained strength. The decline in the value of gold was driven by this resurgence in US Dollar demand. However, hopes for a future cut in interest rates by the Federal Reserve were bolstered by the latest US Nonfarm Payrolls (NFP) data. Such expectations of a potential easing cycle could potentially boost gold prices, as it would make gold a more affordable option for foreign buyers. Additionally, the precious metal continues to receive support from strong purchases by central banks and demand from Asian markets in the short term.
Conversely, ongoing political tensions in the Middle East may stimulate flows towards safe-haven assets, potentially benefiting the price of gold. Later on Tuesday, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, is scheduled to deliver a speech. Any hawkish remarks from Fed officials could support the US Dollar and exert downward pressure on gold, which is denominated in US Dollars.
In other news, Richmond Fed President Thomas Barkin expressed the view that current interest rates should be sufficient to cool down the economy and bring inflation down to the target of 2%. He noted that the robust job market provides officials with time to gain confidence in the trajectory of inflation. Meanwhile, New York Fed President John Williams hinted at potential future rate cuts, citing a moderation in job growth and a holistic assessment of economic data by the Fed.
Market expectations suggest a likelihood of 46 basis points (bps) worth of rate cuts by the end of 2024, with the first cut anticipated in either September or November, according to LSEG’s rate probability app. On the geopolitical front, Hamas accepted an Egyptian-Qatari cease-fire plan, but Israel rejected it, citing unmet “core demands” and continued its offensive in southern Gaza.
Despite the prevailing inflationary environment and uncertainty surrounding the timing of potential rate cuts by the US Federal Reserve, gold has seen a year-to-date increase of approximately 12%. However, recent US employment data revealed a slower-than-expected job growth in April, with annual wage increases dipping below 4.0% for the first time in nearly three years.
In terms of technical analysis, gold prices traded lower on the day but maintained a positive overall outlook, staying above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. While confined within a descending trend channel since mid-April, the short-term trajectory appears skewed towards further consolidation. The Relative Strength Index (RSI) suggests bullish sentiment, hovering around 58.0.
Looking ahead, the upper boundary of the descending trend channel and the April 26 high in the $2,350–$2,355 range represent initial upside targets for gold. Beyond that, resistance levels include the psychological barrier of $2,400 and the previous all-time high near $2,432. On the downside, initial support lies at the $2,300 mark, with a key contention level at $2,275, followed by lower support levels at $2,228 and $2,200.
