Key Points for Gold (XAU/USD):
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Gold prices extended their recovery in the European session, as the US Independence Day holiday left the dollar on alert. With the US session approaching, prices may struggle in the absence of liquidity with the release of the FOMC and NFP meeting minutes this week. The increase in the possibility of a Fed hike of 25 basis points in July has done little to calm the recent rally in gold prices.
Markets are placing the probability at 86.2% that the Fed will offer 25 basis points at the July 26 meeting, up from 53.5% a month ago and 76% a week ago. Despite the increase in the odds of a rate hike, we have also seen growing concerns about a possible recession, with manufacturing data over the past week being particularly atrocious. This could theoretically partly explain the rebound in gold prices after a short period below the psychological level of $1900/oz.
Source: CME FedWatch
As we mentioned on the US holiday, there is not much to expect in the US session as the price is likely to remain within the daily range, between $1918 and $1930 an ounce. No doubt, market participants will be looking forward to the release of the FOMC meeting minutes on Wednesday in search of a potential catalyst that could start to break through the larger range in play between the $1890 and $1945 levels, respectively.
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Technical outlook and final thoughts
From a technical perspective, gold price action has been posting lower highs and lower lows with the 100 day moving average remaining a key resistance area that is likely to define any attempt at a move to the upside. The breach of $1900 last week failed to find acceptance as the precious metal quickly recovered. As long as recession fears prevail, gold could theoretically remain supported as safe-haven appeal grows. A daily candle close below the $1900 level is needed if we want to see further declines for gold prices while at this point the 100-day moving average around the $1945 handle holds the key for the bulls as they try to make a run back at the $2000 mark.
There is a falling wedge pattern on the daily chart below which would indicate an upward breach rather than a bearish one. As mentioned, the first sticking point for any upward move will be the 100-day moving average before the $1975 and $2000 handles come into focus.
gold (XAU/American dollar) Daily chart – July 4, 2023
Source: TradingView, chart by Zain Fouda
Customer Sense Data IG
We take a look at IG’s customer sentiment data and we can see that retailers are currently net positivelongonGoldwith68%of traders who hold long positions (as of this writing). At DailyFX, we usually take a contrarian view to crowd sentiment which means we could see gold prices continue to fall after a short rally to the upside.
Written by: Zain Fouda, Markets Writer DailyFX.com
Connect with Zain and follow her on Twitter: @employee