Gold outlook: An eye for an eye

Gold’s price formed a new all-time high figure at $2431 per troy ounce since our last report. Today we are to discuss the fundamental challenges laid ahead for the precious metal, while we will be concluding this report with a technical analysis of gold’s daily chart. 

Iran-Israel the new Middle Eastern front

On the 1st of April, an Israeli airstrike struck the consular section of Iran’s embassy in Damascus and resulted in the death of two Iranian Generals according to various media outlets. The warning sent by Tehran’s ambassador to Syria that Iran’s response would be delivered “at the appropriate time and place”, seems to have materialized over the weekend. In particular, during the late hours of Saturday the 13th, Iran launched a large-scale aerial assault on Israel, using more than 300 drones and missiles according to various media outlets. During the aerial assault, the Jordanian Air Force, the UK’s RAF, and US Air assets scrambled to intercept the drones/missiles sent by Iran, causing a frenzy as to whether or not a large-scale war in the Middle East was about to begin, which could aid the precious metal given its status as a safe haven asset. However, following their assault, Iran’s permanent mission to the UN posted on social media platform ‘X’, that Iran invoked article 51 of the UN Charter which is the “inherent right of individual or collective self-defense if an armed attack occurs against a member of the United Nations”. The public announcement by Iran, could be seen as an attempt to de-escalate the situation, as they had gotten their “pound of flesh” for Israel’s assault on their embassy in Damascus. Moreover, Iran stated that “the matter can be deemed concluded”, on the condition that Israel does not retaliate. Overall, with Israel pledging to “exact a price” from Iran, it seems that the matter is far from over. Hence, in the event that Israel does decide to retaliate, it could further support gold’s price for the same reasons mentioned above. In our opinion, we would not be surprised to see strikes against Hezbollah in Lebanon and the Houthi rebels in Yemen, if not also IRCG targets in Syria.

US financial releases and their impact on Gold’s price

The US Preliminary University of Michigan consumer sentiment figure for April which was released on Friday tended to imply that from the consumer’s side, the economic prospectus of the US economy is on the decline. In particular, with consumer expectations that the condition of the US economy may be worsening, there may be a concern about a possible decline in economic activity in the future. Thus, potentially pressuring the Fed to adopt a more dovish monetary policy stance. As such, a more dovish stance by the Fed could weigh on the dollar and provide support for gold given their inverse relationship. On the other hand, the US Retail sales rate for March, which was released on Tuesday, showcased a resilient consumer retail side of the US economy, with the retail sales rate exceeding expectations by economists on a month-on-month level. An improvement in retail sales could imply an increase in consumption and thus may add to inflationary pressures in the US economy. We should note that the two financial releases are representative of two separate months, yet remain relevant in assessing the current economic conditions for consumers in the US. Despite the aforementioned financial release, the precious metal seemed unphased by the stronger dollar, potentially due to the geopolitical tensions in the Middle East mentioned in this report,  which may have temporarily decoupled the dollar’s inverse relationship with the precious metal.

Technical analysis

XAU/USD daily chart

• Support: 2330 (S1), 2222 (S2), 2080 (S3).

• Resistance: 2431 (R1), 2540 (R2), 2640 (R3).

Since our last report, gold has formed a new all-time high figure at the $2431 per troy ounce level. We maintain a bullish outlook for the precious metal and supporting our case is the RSI indicator below our chart which currently registers a figure near 70, implying a strong bullish market sentiment in addition to the upwards moving channel which was incepted on the 28th of February. Furthermore, we would also maintain a bullish outlook from a fundamental level. Nonetheless, for our bullish outlook to continue, we would like to see a break above the 2431 (R1) resistance line or at the very least, gold’s price remaining within the upwards-moving channel, with the next possible target for the bulls being the 2540 (R2) resistance level. On the other hand, for a sideways bias, we would like to see the precious metal remain confined between the 2330 (S1) support level and the 2431 (R1) resistance line. Lastly, for a bearish outlook, we would require a clear break below the 2330 (S1) support level with the next possible target for the bears being the 2222 (S2) support line.