Gold price (XAU/USD) falls back to the $2,410 range on Tuesday because central bank officials worldwide are showing reluctance to lower interest rates. When interest rates are higher, gold usually doesn’t do as well because investors can make more money by keeping their money in cash or bonds.
However, worries about conflicts in the Middle East and Ukraine are helping keep gold prices from falling too much. Also, central banks in emerging markets and BRICS nations are buying more gold as a way to protect themselves against sanctions from Western countries, which usually target their US Dollar (USD) or Euro (EUR) reserves.
Gold Price Declines as Interest Rate Outlook Shifts
Gold price goes down on Tuesday because central bankers in the US and Australia not only say they won’t lower interest rates but also talk about the chance of raising them.
Yesterday, Loretta Mester, who is from the Federal Reserve Bank of Cleveland, said the Fed might even raise rates if prices went up too much. She also said it’s not right to think the Fed will cut rates three times this year.
This morning, the Reserve Bank of Australia (RBA) talked about their meeting in May, and they discussed the chance of raising interest rates. It’s the first time in many months they talked about making rules about borrowing money stricter.
Technical Analysis: Gold Price Retreats, RSI Shows Divergence
Gold price (XAU/USD) went down from its highest ever level of about $2,450 on Tuesday after showing a Shooting Star candlestick pattern on Monday. This pattern happens when the price goes up to a new high but then goes down to close near its lowest point. It’s a sign that prices might go down after going up for a while, especially if the next day’s candlestick is red, like it is now. If Tuesday ends as a red day, it might mean that prices could go down even more.
But if Tuesday ends as a green day, it could make the Shooting Star pattern less important and could show that prices might keep going up like they have been.
XAU/USD Daily Chart
The Relative Strength Index (RSI) shows a strong difference with the price on the daily chart, indicating that a possible downturn might happen soon. Even though the Gold price went up higher than before on May 20, the RSI didn’t go up as much. This suggests that the price might go down instead.
If there’s a downturn, Gold might fall to a support level around $2,360, where there’s a trendline going up.
However, the trend for Gold is still looking good in the short, medium, and long term. According to the saying “the trend is your friend”, there’s a higher chance that prices will go up again eventually, even if they go down first.
If Gold breaks past the new highest ever level of $2,450, it will probably keep going up to the next important level of $2,500.
