Market Analysis

Gold Price Rebounds, Surpasses $2,400 Again

Amos Simanungkalit · 23 Jul 2024131.6K Views

Gold prices (XAU/USD) continued their recent decline from last week's record high, hitting a more than one-week low on Monday. The news of US President Joe Biden withdrawing from the 2024 Presidential election increased the likelihood of Donald Trump returning to office, fostering hopes for a more relaxed regulatory environment. This development, coupled with unexpected interest rate cuts by the People's Bank of China (PBoC) on Monday, boosted investors' inclination towards riskier assets, which in turn pressured the safe-haven precious metal.

Additionally, expectations of higher long-term inflation under a potential second Trump presidency led to a rise in US Treasury bond yields overnight. This supported the US Dollar (USD) and further reduced the appeal of non-yielding Gold. However, the anticipation that the Federal Reserve (Fed) will commence its rate-cutting cycle in September limited the USD's gains and helped XAU/USD recover above the $2,400 mark during Tuesday's Asian session.

Daily Digest Market Movers: Fed Rate Cut Speculations Support Gold Prices

Investors showed little reaction to President Biden's decision to end his re-election bid on Sunday, with the anticipation that Trump's proposed policies might benefit the US equity market. The PBoC's unexpected rate cuts on key short and long-term rates provided an additional boost to global risk sentiment. China’s central bank reduced the one-year loan prime rate (LPR), the five-year LPR, and the seven-day reverse repo rate by 10 basis points (bps) to 3.35%, 3.85%, and 1.7%, respectively. This move followed a lack of short-term stimulus to support the real economy from last week's Third Plenum meeting.

These factors combined to trigger a fresh wave of risk-on trade, leading to the overnight decline in Gold prices. Moreover, expectations of higher inflation under a potential second Trump presidency pushed US Treasury bond yields higher, further shifting flows away from XAU/USD. Meanwhile, the market has fully priced in a Fed rate cut in September, which keeps the USD under pressure and supports the yellow metal.

Traders are now focused on Tuesday's US economic data, including Existing Home Sales and the Richmond Manufacturing Index, for short-term opportunities during the North American session. However, the primary market attention will be on Thursday's US Q2 GDP data and Friday's US Personal Consumption Expenditures (PCE) Price Index. Additionally, this week’s release of flash PMIs will offer insights into the global economy and provide some impetus for commodities.

Technical Analysis: Gold Needs to Break Below $2,385 for Bears to Gain Control

Technically, Gold finds support near the $2,385 resistance level, which coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the June-July rally. This area should act as a key pivot point; a decisive break below it could lead to further losses. Gold may then target the 61.8% Fibo. level around the $2,366-2,365 region, then the $2,352-2,350 zone, and eventually the 78.6% Fibo. level near the $2,334-2,334 area and the $2,300 mark.

Conversely, any upward move will likely face resistance near the $2,417-2,418 zone. A strong break above this level could trigger short-covering, potentially lifting Gold prices to the $2,437-2,438 region. Sustained strength beyond this point would indicate the corrective decline has ended, shifting the near-term bias back in favor of bullish traders. The subsequent rally could propel XAU/USD towards the all-time peak around the $2,482 area reached on July 17, with intermediate resistance near the $2,458 region.