Key Takeaways
Gold futures gained 1.95% for the week ending May 8, but the rally stalled after prices were rejected at a key technical resistance zone formed by converging moving averages, leaving the market to question if the recent momentum can be sustained.
"The reclaim of the 20-day moving average suggests that further testing of resistance may occur," Bruce, a finance MBA and CMT® charter holder with over 20 years of experience in financial markets, said. He noted, however, that the rejection near the converged 50-day and 100-day moving averages strengthens the potential for notable resistance in that zone.
COMEX gold futures closed Friday at $4,720.40 an ounce after hitting an 11-day high of $4,765 earlier in the session. The rally was capped by layered resistance from the 50-day moving average at $4,781 and the 100-day moving average at $4,778. Support was established after prices reclaimed the 20-day moving average, now at $4,697.
The dominant technical pattern remains corrective. A drop below the 20-day MA could signal a continuation of the downtrend that began after a rising wedge pattern triggered on April 21. According to Tyler Richey, a technical analyst at Sevens Report, a decisive break above the $4,800 to $4,900 per ounce range is needed to confirm bulls have regained control.
The primary driver for the week's advance was a weaker U.S. dollar, which fell 0.2% to 97.84 on Friday. Lukman Otunuga, head of market research at FXTM, said optimism around a potential U.S.-Iran peace agreement eased some geopolitical concerns, weighing on the dollar and making gold cheaper for holders of other currencies.
Support also came from continued central bank demand, with the People's Bank of China announcing it had increased its gold reserves for the 18th consecutive month.
However, potential headwinds remain. The prospect of persistent inflation could force the Federal Reserve to maintain a hawkish stance. According to CME FedWatch data, traders are pricing in a 14.4% probability of at least one interest rate hike by the end of the year. Higher interest rates increase the opportunity cost of holding non-yielding gold, which could cap the current rally.
This article is for informational purposes only and does not constitute investment advice.
