Breakout from Triangle Consolidation Opens Door for Further Strength

Economic

Commodity

Summary:

Amid geopolitical tensions easing and a lackluster week for economic data, the focus in the gold market has once again shifted towards the Fed's interest rate path.

BUY XAUUSD

Close Time

CLOSED

2348.97

Entry Price

2518.00

2283.00

4200.35 +2.44 +0.06%

38.4

Pips

Profit

2283.00

2352.81

Exit Price

2348.97

Entry Price

2518.00

Fundamentals

Spot gold opened slightly above the $2,300 level early last week, with most of the week spent trading within a $30 range without clear direction. However, lacking support from other significant data, gold bulls gathered momentum (until Friday), pushing prices above $2,370, marking another breakout amidst the shift from last Thursday's initial jobless claims data.

Surprisingly, the data unexpectedly exceeded market expectations. With Fed Chair Powell indicating no rate cuts until 2024, investors perceive the unexpected jobless claims data as increasing the likelihood of rate cuts.

Market Outlook: Following disappointing economic data releases, gold is benefiting from fluid rate expectations. Thursday saw a significant rise in initial jobless claims, indicating a weakening US labor market and refocusing attention on the disappointing nonfarm payroll (NFP) report from the previous week.

The resurgence in gold prices isn't surprising, as bullish sentiment in the market remained untested during the two-week consolidation period. Now, supported by signs of cooling in the US labor market, we're witnessing a technical breakout to the upside. With inflation under control, expectations for US rate cuts have increased from one to two.

However, despite the current market digestion of expectations for two rate cuts this year, these expectations are highly unstable. Employment data and other economic indicators suggest a slowing economy, yet the Fed remains committed to maintaining higher rates for longer. All these factors could potentially strengthen the dollar again, weakening gold's allure.

The latest weekly gold survey indicates renewed optimism in gold prospects, with over half of retail traders believing gold prices may appreciate this week. A gold trend survey involving 17 Wall Street analysts shows few predicting a decline. Ten experts (59%) anticipate gold prices to rise this week, with only two analysts (12%) predicting a decline. Five experts (29%) expect gold to trade sideways.

Meanwhile, an online sentiment poll gathered 195 votes, showing a higher level of pessimism among mainstream investors. Ninety-seven retail traders (50%) expect gold prices to rise this week. Forty-two respondents (21%) anticipate a decline, while fifty-six (29%) expect sideways movement in gold prices over the next week.

Inflation data will return to focus this week. Tuesday will see the release of the US April Producer Price Index (PPI), Wednesday with the April Consumer Price Index (CPI) and US April retail sales report overlap, alongside Thursday's initial jobless claims, US building permits and housing starts, and the Philadelphia Fed Manufacturing Survey. Additionally, the market eagerly awaits Fed Chair Powell's speech in Amsterdam on Tuesday.

Further trading opportunities for gold will be provided by more risk events alongside the 10-year US Treasury bond yields.

Breakout from Triangle Consolidation Opens Door for Further Strength_1

Technical Analysis

Looking ahead to this week, the new momentum in gold emerged after successfully holding key retracement levels on the technical front. Last week's upward momentum reaffirmed that the decline in the second half of April was a corrective pullback. However, despite the short-term strength in gold, we believe that significant efforts are still needed to attract new funds to sustain further price advances. The significant retracement seen in the 4-hour chart before last week's close validates this point.

Technically, gold is still trading within the ascending channel in the 4-hour chart. Nonetheless, the RSI indicates overbought conditions, suggesting potential for a pullback. Therefore, the downside target for bears is a further retracement to around $2,347 or even lower to $2,329.

On the other hand, bulls will seek to capitalize on the current rebound to further test $2,380 or higher towards the psychological level of $2,400.

In the daily chart structure, gold appears poised to complete a breakout from a descending channel formation. Hence, the ultimate target for bulls is to extend the rally to $2,432 or higher towards the $2,500 mark. Conversely, the medium-term target for bears is to push prices below $2,277 or even lower to $2,212.

Overall, the upward breakout in gold last week aligns with expectations. As the price movement is being driven by institutions, and with last week's closing price lower than expected and momentum showing signs of convergence, we believe the market may adopt a wait-and-see approach ahead of Wednesday's crucial inflation data release. Furthermore, due to the strong rebound in gold prices last week, which has initiated the formation of a potential "inverse head and shoulders" pattern, we anticipate a gradually clearer bullish trend in the future. In terms of trading strategy, it is recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 2337

Target Price: 2518

Stop Loss: 2283

Valid Until: 2024-05-26 23:55:00

Support: 2335, 2331, 2320

Resistance: 2352, 2363, 2373

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