Gold prices experienced a turnaround, recovering from five-week lows of around $2,000 to reach approximately $2,040 by the end of the trading week. However, the overall momentum for the precious metal weakened as investors reduced expectations of a Federal Reserve rate cut, influenced by positive economic data. The week began on a bearish note due to increased demand for the US Dollar and rising US yields. Disappointing Chinese economic data further contributed to the decline.
The strength of the US Dollar, reaching yearly peaks, and robust economic indicators, including Retail Sales and Industrial Production, diminished expectations of a Federal Reserve rate cut in March. The probability of such a cut dropped from over 80% to just over 50% by the end of the week. Speculation of a rate cut in Q2 also dwindled, causing US yields to rise across the curve.
Various factors, such as unexpected UK inflation figures and statements from Federal Reserve officials, contributed to the perception of a longer-than-anticipated tight monetary policy. European Central Bank President Christine Lagarde hinted at potential rate reductions during the summer.
Looking ahead, gold prices may be influenced by central bank interest rate decisions, Manufacturing and Services PMIs, Q4 US GDP Growth Rate, and US inflation figures. Geopolitical events, including the Israel-Hamas conflict and the Red Sea crisis, could also impact demand for gold.
From a technical standpoint, the critical support zone is around $2,000. A breach could lead to further declines towards previous bottoms, with the daily RSI indicating potential for short-term recovery. On the upside, targets include the weekly high of $2,088 and the all-time top of $2,150 recorded on December 4, 2023.
Continuing into the technical outlook, the crucial support zone around $2,000 remains a key focal point. A breach of this level might pave the way for additional declines, potentially targeting the December 2023 bottom of $1,973, followed by the 200-day Simple Moving Average (SMA) at $1,963 and the November 2023 low of $1,931. Further losses could prompt a retest of the October 2023 bottom at $1,810, followed by the 2023 low of $1,804, and possibly reaching the $1,800 region.
On a positive note, the daily Relative Strength Index (RSI) rising past the 50 threshold suggests the potential for additional recovery in the very near term. However, the sustainability of this upward movement will depend on various factors, including economic data releases, geopolitical events, and central bank decisions.
Looking at the upside, the initial target stands at the weekly high of $2,088, which was reached on December 28. Beyond that, the next significant target is the all-time high of $2,150 recorded on December 4, 2023. Achieving these milestones would signal a reversal of the recent downtrend and potentially attract renewed bullish sentiment in the gold market.<
Turning attention to upcoming events, the coming week is expected to bring interest rate decisions from the Bank of Japan (BOJ), Bank of Canada (BOC), and the European Central Bank (ECB). Forecasts suggest that all three central banks are likely to maintain their current interest rates. Additionally, market participants will closely watch the release of advanced Manufacturing and Services PMIs on both sides of the Atlantic, and estimates of the Q4 US GDP Growth Rate and US inflation figures for December, measured by the PCE.
On the geopolitical front, ongoing concerns surrounding the Israel-Hamas conflict, the Red Sea crisis, and the involvement of major players in the region continue to be factors that could bolster demand for gold as a safe-haven asset.
Amidst these diverse factors influencing the gold market, traders and investors will continue to be on the lookout for clues that could potentially impact the precious metal’s future course in the coming weeks. The future path of gold prices will probably be determined by the careful balancing act between geopolitical developments, central bank policies, and economic data.
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