Gold’s Resilience Amid Economic Uncertainties and Geopolitical Tensions
For the second consecutive day, GOLD (XAU/USD) witnessed a buying interest on Friday, continuing its recovery from a one-month low near $2,013, coinciding with the 50-day Simple Moving Average (SMA).
Despite the uptick, GOLD remains in a limited trading band, suggesting cautiousness among bullish investors due to uncertainties surrounding the Federal Reserve’s rate-cut trajectory.
Thursday’s data revealed a higher-than-expected rise in U.S. consumer prices in December, fueling speculation that interest rates might remain elevated for an extended period. This sentiment was reinforced by hawkish comments from Federal Reserve officials. Nonetheless, market sentiment is tilting towards a likelihood of a rate reduction in March, weighing on the U.S. Dollar and bolstering the appeal of non-yielding Gold.
Additionally, the ongoing Israel-Hamas conflict and concerns over China’s sluggish economic recovery are further enhancing Gold’s allure as a safe-haven asset. However, it remains advisable to await substantial buying momentum before confirming a near-term bottom in GOLD prices or considering significant upward moves.
The mixed U.S. consumer inflation data led to speculation about a potential delay in the Federal Reserve’s anticipated rate cut in March, sending Gold to its lowest in a month last Thursday. The headline U.S. CPI experienced an uptick from 3.1% to 3.4% year-over-year in December, while the core index (excluding food and energy) posted its smallest annual increase since May 2021.
Cleveland Fed President Loretta Mester remarked on the CPI data, suggesting it might be premature for the Fed to reduce interest rates in March. Richmond Fed President Tom Barkin emphasized the need for clear evidence of inflation trending towards the target before considering rate cuts. Chicago Fed President Austan Goolsbee echoed this sentiment, highlighting the central bank’s ongoing path to managing inflation and the necessity to assess policy tightness as inflation declines.
Market expectations, as indicated by the CME Group’s FedWatch Tool, still show a probability exceeding 65% for a rate cut in March, providing support for Gold. The subdued yield on the benchmark 10-year U.S. Treasury bond, remaining below 4.0%, keeps pressure on U.S. Dollar bulls and favors Gold’s stability.
Geopolitical risks are heightened by U.S. and UK military actions against Houthi targets in response to attacks in the Red Sea, potentially escalating tensions. Chinese inflation data and a 0.3% decrease in imports in 2023 suggest deflationary pressures and a slow economic recovery, further complicating the global economic outlook.
As traders anticipate the U.S. Producer Price Index and comments from Minneapolis Fed President Neel Kashkari for new directions, XAU/USD is poised to conclude its second consecutive week in the negative territory.
Gold Technical Outlook
GOLD prices attempted a downward breach of the 2016.90 support line but rebounded, approaching the resistance of a minor bearish channel, where the EMA50 converges, reinforcing resistance.
This sets the stage for a potential resumption of the bearish trend, with a break below the support likely to extend the corrective bearish wave, targeting 1977.46 as the next goal.
Conversely, a breach above the minor resistance at 2041.00 would halt the anticipated decline and could lead to further gains, potentially reaching 2065.70 before any subsequent downturn.
Today’s expected trading range is between 2010.00 support and 2045.00 resistance, with the trend leaning towards bearish.
Gold XAU Live Chart
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