Gold is currently trading below the resistance level of $3375. Technical indicators suggest a possible increase in buying interest. If the price breaks above this resistance, it could reach targets of $3450 and the highs from April, around $3500. A key support level to watch is $3280. Recently, gold has been forming a base close to $3375 after hitting resistance near $3500 in April. The daily MACD indicator is above the baseline, showing upward momentum.

Potential Uptrend Breakout

If gold moves past $3375, it could continue its upward trend, targeting $3450 and the previous peak range of $3500 to $3520. The support level at $3280 is essential for market stability. Given the current technical indicators, we think traders should prepare for a potential upward breakout soon. The price consolidation just under the resistance, along with bullish signals, suggests that strategies like buying call options or setting up bull call spreads could be beneficial. These strategies would enable traders to profit if prices move higher. This positive outlook is backed by strong demand fundamentals. The World Gold Council reported that central banks bought an impressive 290 tonnes of gold in the first quarter of 2024. This large-scale purchasing provides a solid price floor, which limits potential price declines.

Impact of Macroeconomic Trends

Recent economic data supports the expectation of higher gold prices. U.S. inflation in May cooled to 3.3%, which was below expectations. This has raised market hopes for a Federal Reserve interest rate cut, with the CME FedWatch Tool indicating almost a 70% chance of a cut by September. Lower interest rates often make holding non-yielding gold more attractive. Historically, gold has performed well when the central bank starts to ease rates, similar to the 2019 pivot that led to a significant rally. This trend suggests the current market conditions could favor a notable price increase. We view the current price behavior as a potential starting point for a similar surge. The sentiment among large speculators also supports this outlook. The latest Commitment of Traders (COT) report shows that money managers are increasing their net-long positions in gold futures, indicating institutional investment betting on price rises. Such positioning often precedes significant market shifts. Thus, we recommend setting strike prices for long call positions around the $3450 target to take advantage of the anticipated price movement. The noted support level is crucial for managing risk. If the price decisively drops below that level, it would signify that the bullish outlook might be failing, prompting us to exit those positions. Create your live VT Markets account and start trading now.

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