Gold prices experienced a decline of 1.55% over the past week, briefly touching their lowest point since early April. Despite positive fundamentals, the current downward correction suggests the potential for further extension. Let's delve into the technical outlook for Gold (XAU/USD) in the coming days and weeks.
Gold dropped for the second consecutive week, settling just above the $2,300 mark as traders reacted to key market events, including the Federal Reserve's monetary policy announcement and the release of the U.S. employment report. Despite expectations of a stronger response to falling U.S. bond yields, prompted by Fed Chair Powell's dismissal of rate hike prospects and hints at potential cuts amid inflation concerns, the precious metal failed to rally. This unexpected lackluster performance could be attributed to the weakened inverse relationship between gold and rates observed earlier this year, with both rising simultaneously.
Looking ahead, factors such as signs of economic vulnerability, the Fed's inclination towards easing, and a weakening U.S. dollar could theoretically support precious metals. However, given gold's substantial rally this year and its detachment from underlying fundamentals, further deflation or sideways trading, despite supportive factors, wouldn't be surprising.
The upcoming U.S. economic calendar appears relatively quiet, lacking major high-profile events that could significantly impact volatility. However, this calm could change with the release of the April consumer price index later this month, potentially sparking sharp price movements depending on data surprises.
From a technical standpoint, despite hitting its lowest level in nearly a month, gold managed to hold above the $2,280 support level. Bulls will need to defend this level diligently, as a breach could lead to a decline towards the $2,260 Fibonacci level, followed by the 50-day simple moving average at $2,235.
Conversely, a bullish reversal from current levels could encounter resistance at $2,325 and $2,355, with a breakout potentially paving the way for a rally towards $2,375, marked by a short-term descending trendline originating from the record high.
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