Gold Eyes YTD High Following Triangle Breakout, FOMC and Overall Sentiment Remain Key

GOLD PRICE, CHARTS AND ANALYSIS:

Gold (XAU/USD) AND DOLLAR INDEX FUNDAMENTAL BACKDROP

Gold prices have stabilized this morning following yesterdays impressive $40 dollar rally. The precious metal saw its safe haven appeal boosted thanks to US debt ceiling concerns as well as the ongoing uncertainty around the health of regional banks in the US.

Gold is currently trading around $2014/0z mark following the European open as markets look for any fallout from yesterday’s selloff in US banking stocks. This came as somewhat of a surprise with no news or new data inspiring the selloff but rather fears that more regional US banks could come under strain in the months ahead. What made the selloff even more intriguing was that it came a day after First Republic Bank was acquired by JPMorgan Chase. Are we going to see a pattern where smaller regional banks are acquired/rescued by larger institutions?

The US Debt Ceiling meanwhile remains a concern as Democrats and Republicans aren’t willing to compromise to reach an agreement. A warning by US Treasury Secretary Janet Yellen about a June deadline has seen the pressure ramp up on US Policymakers to reach a deal. Either way and regardless of the outcome at this stage Gold is set to benefit, with an extension of the debt ceiling likely to result in a weaker Dollar and could see the Dollar Index (DXY) push below the 100.00 mark once more.

Looking ahead to the rest of the day we have US ISM Services data as well as the FOMC meeting and press conference to look forward to. There is a chance that we do see a lack of volatility and movement ahead of FOMC, however any further dent to sentiment or a lower ISM services print could see Gold continue toward its YTD high.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

Form a technical perspective, Gold remains in an ascending channel on the daily timeframe as yesterday’s threat of a downside breakout failed to materialize. This wasn’t a surprise given that price action saw buildup of higher lows before the expansive upside move yesterday.

Gold (XAU/USD) Daily Chart – May 3, 2023

Source: TradingView, Chart Prepared by Zain Vawda

This is supported by the H4 timeframe which shows a break to the upside of a triangle pattern. The RSI on the H4 timeframe however is in overbought conditions and consolidation or a pullback could be on the cards. We could also potentially see a retest of the triangle breakout before continuing toward the YTD highs.

Alternatively, a break below the $1998/oz mark could open up the way for further downside. A break of the ascending channel on the Daily timeframe could result in a retest of the 50 and 100-day MAs resting at $1943 and $1903/oz respectively.

Gold (XAU/USD) H4 Chart – May 3, 2023

Source: TradingView, Chart Prepared by Zain Vawda

Eyes are on the FOMC today and any hawkish rhetoric from Jerome Powell may scupper a push toward the YTD Highs. Any mention of a pause in the Feds hiking cycle however could be just what the precious metal needs for fresh YTD and ALL-Time highs to be printed.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda