Market update: gold price trade's bearish scenario contingent on support breakdown

[ShaunaIG]

Gold has rallied spectacularly this year, hitting an all-time high near $2,450 in early May. The upward momentum, however, has begun to fade, with prices down more than 4% from their recent peak over the past few trading sessions.

Source: Getty Images

 

Forex Commodities Gold Market trend Gold as an investment XAU/USD

 

Written by: Diego Colman | Market Analyst, New York

IG

Publication date: Thursday 30 May 2024 05:28

Bulls are starting to head for the exits, in search of more attractive opportunities

With market dynamics realigning with fundamentals following the speculative frenzy seen during the first few months of the year, the downward correction in the precious metals space of late could continue in the near term. This scenario becomes more probable if sticky US inflation compels the Fed to maintain higher interest rates for longer – an outcome poised to benefit the US dollar.

For greater confidence in the bearish outlook, traders may opt to wait for more definitive cues. One such indication could be a breach of the support threshold around $2,335, where a key trendline intersects with the 38.2% Fibonacci retracement of the March-May rise. A higher-than-average trading volume accompanying such a technical breakdown would further validate the signal.

In the event of XAU/USD decisively dipping beneath $2,335, the 50-day simple moving average at $2,325 will be an important line of defense against the sellers’ next offensive. While taking out this floor might be difficult, a successful breach could pave the way for a deeper pullback, drawing focus to a crucial Fibonacci level at $2,265, a tad below this month’s swing low.

Conversely, if prices pivot to the upside and resume their upward journey, initial resistance can be identified at $2,365, followed by $2,377. Traders should keep a close eye on this latter ceiling, as a breakout could reduce the odds of additional weakness and facilitate a move towards $2,420. Continued gains could then bring the all-time high within reach.

Gold price technical chart

Source: TradingView

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.