XAU/USD Daily Chart Analysis – 2024-03-06

The recent correction in the Gold price from the near 2024 highs reflects a consolidation phase as the market digests the potential policy implications from upcoming key events, particularly Federal Reserve Chair Jerome Powell’s testimony and the U.S. employment data.

Technical Analysis: The XAU/USD (Gold) has retreated from its surge to near 2024 highs of $2,142, seen on Tuesday, currently undertaking a corrective phase that mirrors the pattern observed over the last few sessions. The technical structure on the daily chart reveals that Gold is experiencing some resistance near all-time highs, with the 14-day Relative Strength Index (RSI) indicating overbought conditions which could signal an impending correction.

The immediate support to watch is at the 23.6% Fibonacci retracement level of the recent rally at around $2,107. A sustained move below this level could lead to further declines towards the 38.2% Fibonacci level at $2,082. However, the recent Bull Cross of the 21-day and 50-day Simple Moving Averages (SMA) suggests underlying bullish sentiment that may limit the downside.

Fundamental Analysis: Fundamentally, the anticipation of aggressive rate cuts by the Fed has been a major catalyst for Gold’s rally. However, the latest U.S. ISM Services and Manufacturing PMI data have shown a softening, intensifying concerns about a potential ‘soft-landing’ scenario. The market’s focus now shifts to Powell’s testimony, which could provide further cues on the Fed’s rate path, and the U.S. ADP Employment Change and JOLTS Job Openings data, which could influence Dollar dynamics and subsequently, the Gold price.

Overall Market Sentiment: The market sentiment for XAU/USD can be outlined as follows:

• 55% Positive: Despite the current pullback, optimism remains due to the heightened expectations for Fed rate cuts and the recent Bull Cross of the moving averages.
• 35% Neutral: A cautious sentiment prevails ahead of Powell’s testimony and U.S. employment data, with the market seeking clarity on the economic outlook and monetary policy.
• 10% Negative: There is a modest bearish sentiment emerging from the overbought RSI conditions and the correction from recent highs, suggesting potential for a deeper pullback.

The positive sentiment is driven by the overall trend and technical indicators, which still favor an uptrend despite the RSI’s warning of overbought conditions. The neutral sentiment reflects the market’s wait-and-see approach in anticipation of directional cues from upcoming fundamental events. The negative sentiment, although minor, acknowledges the potential for a correction if Powell’s remarks are less dovish than expected or if U.S. labor market data comes out stronger, which could temper expectations for aggressive rate cuts.