XAU/USD Daily Chart Analysis – 2024-01-26

The recent strong performance of the U.S. economy, evidenced by a higher-than-expected GDP growth of 3.3%, and a rebound in new home sales, bodes well for the U.S. dollar. Typically, a stronger dollar can exert pressure on gold prices as it becomes more expensive for holders of other currencies, potentially reducing demand.

However, the flat durable goods orders suggest that not all economic indicators are robust, which could introduce some caution into the market. Moreover, traders’ increasing bets on a Federal Reserve rate cut by May indicate a shift in sentiment that could be favorable for gold. Rate cuts generally decrease the opportunity cost of holding non-yielding assets like gold and can weaken the dollar, making gold more attractive.

In Europe, the ECB’s decision to keep interest rates unchanged, along with dovish comments from President Christine Lagarde, could indicate that the bank is not in a hurry to tighten monetary policy. This contrast in policy stance between the ECB and the Federal Reserve, especially if the latter leans towards a rate cut, could further support gold prices as the euro weakens.

The technical indicators suggest a bullish sentiment with a ‘Strong Buy’ signal from technical indicators despite a ‘Sell’ signal from moving averages, indicating a market divergence and potential volatility. The RSI is neutral, suggesting that the price is neither overbought nor oversold, while the Stochastics being in the ‘Buy’ territory indicates momentum could be shifting to the upside.

Gold prices have been trading within a narrowing price channel, indicating a period of consolidation. The proximity to the upper boundary of the channel and the Fibonacci retracement level at $2032 could act as immediate resistance. A breakout above this level could signal a continuation of the bullish trend, while a rejection could lead to a retest of lower support levels.

Overall Market Sentiment:

Considering the mixed economic indicators from the U.S., alongside the potential shift in Federal Reserve policy and dovish ECB stance, the market sentiment for gold can be summarized as follows:

• Positive Sentiment: 55% – Predicated on the potential for a weaker dollar due to anticipated Fed rate cuts and ongoing economic uncertainties, enhancing gold’s appeal.
• Negative Sentiment: 25% – Reflecting the pressure from a strong dollar post-GDP release and the possibility of continued economic resilience reducing the need for safe-haven assets.
• Neutral Sentiment: 20% – Indicating the market’s uncertainty as it processes divergent economic signals and central bank communications.