#GoldTechnicalAnalysis# On Thursday (September 12th), spot gold soared nearly 2%, hitting a record high. Analysts pointed out that after the European Central Bank's decision, the euro/USD strengthened, thus hitting the US dollar index. Coupled with US data showing an economic slowdown, market expectations for a Fed rate cut next week strengthened, causing the gold price to soar.
Spot gold closed on Thursday with a surge of $47.30, up 1.88%, at $2558.58 per ounce; the highest gold price reached $2560.15 per ounce during trading, setting a historic new high.
US Data Strengthens Expectations for Fed Rate Cut
FXStreet analyst Christian Borjon Valencia pointed out that further US initial jobless claims and producer inflation data suggests the Fed may cut rates next week, propelling gold prices to historic highs above $2550 per ounce. CME's 'FedWatch' tool shows an 85% probability of a 25 basis point rate cut by the Fed, further boosting gold's attractiveness in a low-interest-rate environment.
US Department of Labor data released on Thursday showed that initial jobless claims increased for the first time in 3 weeks, indicating a gradual slowdown in the labor market.
The report stated that as of the week ending September 7th, initial jobless claims were 0.23 million, an increase of 2000 from the previous reporting period, higher than the market's expected 0.225 million.
Phillip Streible, Chief Market Strategist at Blue Line Futures, stated, 'The labor market continues to languish, and if it worsens, this impending rate cut journey will continue for a long time.'
Another set of data on Thursday showed that US producer price index (PPI) rose 1.7% year-on-year in August, below the expected 1.8%; and the core PPI rose 2.4% year-on-year, also below the expected 2.5%.
Valencia said that Thursday's data and the news of a 25 basis point rate cut in consumer price index (CPI) on Wednesday pushed up the price of gold ahead of the Federal Reserve meeting. Gold traders will focus on the consumer sentiment survey to be released by the University of Michigan on Friday.
Alex Ebkarian, Chief Operating Officer of Allegiance Gold, said, "We are heading towards a lower interest rate environment, making gold more attractive. I think there may be more frequent rate cuts rather than larger ones."
Because gold does not generate interest, a decrease in interest rates can reduce the opportunity cost of holding gold and increase its investment attractiveness.
The decision of the European Central Bank (ECB) has impacted the US dollar index.
Valencia said that in addition to the intensification of expectations for the first rate cut by the Federal Reserve due to US data, the news of a 25 basis point rate cut by the European Central Bank pushed up the euro/dollar exchange rate and suppressed the US dollar.
Due to the rate cut by the European Central Bank, but ECB President Lagarde downplayed expectations of another rate cut next month, saying that the central bank will decide on the next policy action based on economic data, and the euro/dollar exchange rate rose on Thursday.
Due to inflation and slowing economic growth, the European Central Bank cut interest rates by 25 basis points again on Thursday. After the rate cut by the European Central Bank, market focus shifted to the future monetary policy path of the euro zone.
Lagarde said at a press conference, "We will make decisions step by step in our meetings. I will not make commitments to any specific dates, and our policy path is not predetermined."
After the European Central Bank released its policy statement, traders reduced their expectations for ECB interest rate cuts and expected a further cut of 36 basis points by the end of 2024.
Yael Selfin, Chief Economist at KPMG, said, "Looking ahead, the direction of interest rates remains uncertain. While the ECB Governing Council generally agrees on the need to ease policy constraints, there are still differences in the pace of interest rate cuts."
The euro/dollar closed sharply higher on Thursday, up 0.55% to 1.1071. The U.S. dollar index (DXY), which tracks the dollar against six major currencies, closed down 0.5% at 101.24 on Thursday.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, "The ECB interest rate cut, the slight increase in initial jobless claims, and the PPI, among other factors, are enough to push gold prices to new historic highs."
Hansen added that for the gold market, the beginning of an interest rate cut cycle may increase support, regardless of the magnitude of the rate cut. Market expectations for the Fed to soon begin an interest rate cut cycle have been strengthening, supporting the recent strength in gold prices. Strong buying by central banks and strong demand from the OTC market have also driven the rise in gold prices.
Steve Englander, Head of G10 Forex Research at Standard Chartered Bank, said, "Lagarde has basically met market expectations for the ECB. Overall, the market has some risk appetite and investors are buying back the currencies they previously sold, which typically indicates a recovery in risk appetite."
How to trade gold?
Christian Borjon Valencia, analyst at FXStreet, pointed out that the price of gold soared on Thursday, breaking through the previous historic highs of $2531 per ounce and $2550 per ounce, setting new historic highs. Although the negative correlation between gold prices and U.S. Treasury yields was broken that day, the upward momentum of gold prices continues to accelerate.
Valencia said if the gold price continues its upward trend, the next resistance level will be the psychological key level, such as $2575 per ounce, and then the major level of $2600 per ounce.
(Spot gold daily chart source: FXStreet)
Valencia added that for a gold pullback, sellers must first break through $2550 per ounce, followed by the high point of $2531 per ounce touched on August 20. In this case, sellers will aim for $2500 per ounce.
If the gold price further weakens, the next support level will be the low point of $2470 per ounce on August 22, followed by the high point of $2450 per ounce on May 20.
