Gold Prices Surge as Market Sentiment Turns Risk-On

In a surprising turn of events, gold prices have settled around the correctional bearish channel's resistance, signaling a potential rebound in bearish momentum. This comes as stochastic indicators begin to show overbought signals, suggesting a negative motive that could push the price downwards. Traders are now waiting for a break below the $1,945.20 mark to confirm a further decline towards the next main target at $1,913.15.

However, it is worth noting that if the price consolidates above $1,956.50, there is a possibility of additional intraday gains and a test of the key resistance level at $1,977.25 before any further downward movement.

The recent rally in gold prices above $1,960.00 is attributed to a risk-on mood prevailing in the market. The decision by the Federal Reserve to skip interest rate hikes has provided relief to market participants and contributed to the positive sentiment. Additionally, the breakout of the Falling Channel pattern in gold prices further supports a bullish reversal.

Meanwhile, S&P500 futures have recovered their earlier losses and shifted into positive territory, driven by the growing risk appetite. The US Dollar Index (DXY) is consolidating within a narrow range above 102.00, while US Treasury yields remain choppy due to a lack of potential triggers.

The interest rate decision by the Federal Reserve, which signaled the absence of immediate rate hikes, has been a relief for market participants. However, the dot plot released by the Fed indicates the likelihood of two more interest rate hikes in the future. Despite this, there are concerns that the current economic prospects in the United States may be turning vulnerable, as evidenced by the easing labor market conditions and the impact of higher interest rates and tight credit conditions on firms' capacity utilization.

From a technical perspective, gold prices have shown a breakout of the Falling Channel chart pattern, suggesting a bullish reversal. The price is approaching a horizontal resistance level around $1,985.53, which is derived from the low recorded on May 16. Additionally, the price has climbed above the 200-period Exponential Moving Average (EMA) at $1,960.00, indicating a shift in the long-term trend towards a bullish sentiment. The Relative Strength Index (RSI) is also poised to enter the bullish range of 60.00-80.00, which would confirm the upside momentum.

Looking ahead, there are some key levels to monitor in gold prices. The potential formation of a Double Bottom pattern, with Thursday's low of $1,936 acting as a support level, could be confirmed if the price moves above the neckline at $2,000. A break below the support zone of $1,936-$1,945 could signal a bearish run, with the next significant support level at the Double Bottom of $1,811-$1,813.

As long as the price remains above the 100-, 200-, and 260-day Simple Moving Averages (SMAs), the bias remains bullish. However, a break above the 55-day SMA, currently intersecting around $2,000, would be a critical level to overcome and could indicate a resurgence of bullish momentum. If the price manages to break above $2,000, it could target the resistance zone near the all-time high.

In conclusion, gold prices have experienced a rally driven by a risk-on sentiment and the Fed's decision to skip interest rate hikes. The technical analysis suggests a potential bullish reversal, with key levels to watch for further confirmation of the upward momentum. However, market participants should also monitor the economic data releases, particularly the US Prelim UoM Consumer Sentiment, which could have an impact on the USD and consequently influence the price of gold.