In simpler terms, even though gold had a couple of bad days recently, Kelvin Wong, who is a Senior Market Analyst at OANDA, believes that the technical indicators suggest gold prices will likely go up in the future. He mentioned that gold’s price dropped by 2.7% on Monday, April 22nd, which was its biggest single-day drop since June 13th, 2022, almost two years ago. And the downward trend continued into the Asian trading session on April 23rd.
Wong pointed out that the lowest price gold reached yesterday was $2,291, which marks a total decrease of 5.8% from its highest recorded value of $2,431 on April 12th. He raised a critical question about the future of gold’s upward trend: Can the buyers regain control, or is it the end of the road for its medium-term rise that started in mid-February 2024?
Wong then highlighted a few technical indicators that he believes suggest gold’s medium-term upward trend will continue. One of these indicators is the gold/copper ratio, which compares the price of gold to the price of high-grade copper futures in US dollars.
Wong explains that the Gold/Copper ratio is a useful tool because it removes the influence of changes in the US dollar exchange rate. This allows for a clearer comparison of the relative value of gold compared to copper. If the ratio of Gold/Copper decreases over time, it indicates that the global economy is likely growing, and vice versa if the ratio increases. This is because a higher demand for gold usually signals economic uncertainty or a slowdown.
He notes that the Gold/Copper ratio has remained above a certain level of support since late November and has consistently followed an upward trend since October 15, 2021. This suggests that there is still significant demand for gold as a hedge against the risks associated with stagflation (a combination of economic stagnation and inflation).
Another important indicator supporting the likelihood of gold seeing further price increases is the 50-day moving average (MA). This moving average line continues to act as a support for the current price of gold.
From a technical analysis perspective, Wong explains that the price of gold (XAU/USD) is still trading above its 50-day moving average. This moving average line aligns with a significant support zone ranging between US$2,260 and US$2,210. This zone is defined by two key factors: firstly, the upper boundary of a major ascending channel dating back to September 28, 2022, and secondly, the 38.2% Fibonacci retracement level of the recent six-month upward movement sequence, stretching from the low point on October 6, 2023, to the high point on April 12, 2024.
Moreover, Wong mentions that the daily RSI (Relative Strength Index) momentum indicator is still holding above a crucial support level around the 50 mark. This occurred after the indicator moved out of the overbought region. This suggests that the medium-term upward trend, which began on February 14, 2024, is still intact.
If gold manages to surpass the $2,420 mark, we could expect the next significant resistance level around $2,540,” Wong elaborated. “Conversely, if it falls below the lower limit of $2,210 in the crucial support zone, it may extend the current corrective decline within its major upward trend, potentially exposing a significant support zone between $2,075 and $2,035, which also aligns with the 200-day moving average.
Gold’s price has been quite turbulent today. It fluctuated between $2,311.81 and $2,337.38 per ounce. However, it has so far avoided a third consecutive day of decline. As of now, the latest trading price for spot gold is $2,322.18 per ounce, remaining unchanged for the session.
