The upward movement of gold’s price has been maintained since our last update, reaching new record high levels in today’s Asian session. On a fundamental level, we note that the precious metal’s price continues to enjoy support given the safe haven inflows, given the uncertainty created by geopolitical issues, but also gets support from the intensified market expectations for the Fed to continue easing its monetary policy. We are also to have a look at the validity of the negative correlation of the USD with gold’s price at the current stage and close the report with a technical analysis of gold’s daily chart. Finally we highlight the holiday period especially in the Americas and Europe, as thin trading conditions may apply which in turn may lead to unexpected, wide moves which could in turn also affect gold’s price.
- Gold’s price seems to be enjoying some safe-haven inflows as geopolitical issues tend to increase uncertainty on a global level. One issue would be the ongoing war in Ukraine, as despite efforts by the Trump Government to intervene, the war is still raging, providing little if any assurance for a possible end. Also, we note that the tensions in the relationships of the US with Venezuela have escalated further, with the US reported to be preparing to board a third oil tanker under the Venezuelan flag. Furthermore, over the week, reports surfaced about Israel proposing to the US Government to undertake joint airstrikes against Iran, a development that could underpin new tensions in the area as a whole. Overall, should geopolitical issues continue to intensify the uncertainty in the markets, we may see gold’s price getting more safe haven inflows, while should tensions ease, we may see gold’s price weakening.
- Also, the market’s expectations for the Fed to continue easing its monetary policy in the coming year seem to intensify, which also tends to provide support for the USD. We note that currently Fed Fund Futures (FFF) imply that currently the market expects the bank to cut rates twice in the coming year, once in April and once in July. Also, please note that Fed policymakers in their last dot plot had signalled only one more rate cut in their new dot plot. Thus, the market at the current stage is more dovish than what the Fed policymakers have signalled. The possibility of the market also pricing in a possible dovish pivot by the Fed, after the replacement of Fed Chairman Powell, cannot be excluded. In any case, should we see the market’s expectations for the Fed to cut rates at a faster pace, intensifying over the coming days, gold’s price may get additional support and vice versa, a possible easing of the market’s dovish expectations could weigh on gold’s price.
Since the start of the past week, we note that gold’s price has been slowly but steadily on the rise, while for the same period, the USD index, which describes the reaction of the USD against a basket of currencies in the FX market, also rose initially, signalling some strengthening of the USD, yet retreated today. Hence, for the time being, we do not recognise a clear-cut negative correlation being in existence between the two trading instruments. Yet at this point, we may see certain events, such as macroeconomic releases, regenerating the negative correlation of gold’s price with the USD. For example, tomorrow we get the preliminary US GDP advance rate for Q3, and a possible wider-than-expected slowdown of the rate signalling some economic weakness in the US could weigh on the USD, while at the same time may provide some support for gold’s price as uncertainty for the US macroeconomic outlook may be enhanced.
Gold Technical analysis
In today’s Asian session, gold’s price reached new All Time High (ATH) levels by breaching the 4375 (S1) resistance line, now turned to support. We maintain a bullish outlook for the precious metal’s price and intend to keep as long as the upward trendline guiding the precious metal’s price since the 28th of October and it has steepened its upward slope since the 21st of November. The bullish outlook is also supported by the upward direction of the 20 moving average (MA, blue line), the 100 MA and the 200 MA.
The RSI indicator is also on the rise, above the reading of 70, implying a strong bullish market sentiment for gold’s price which tends to support our bullish outlook, yet at the same time suggests that the precious metal’s price has reached overbought levels and thus may be ripe for a correction lower. Similar signals derive from the bullion’s price action breaching the upper Bollinger band, which also serves as a signal for a possible correction lower.
Should the bulls maintain control, we set as their next possible target the 4500 (R1) resistance line, while even lower, we note the 4650 (R2) resistance barrier. Should the bears take over, we may see gold’s price reversing today’s losses by breaking the 4375 (S1) support line, continue lower to break also the prementioned upward trendline in a first signal of an interruption of the upward movement of gold’s price, and continue even lower by breaking the 4240 (S2) support level with the next level being set at the 4130 (S3) support base
XAU/USD Daily Chart
- Support: 4375 (S1), 4240 (S2), 4130 (S3)
- Resistance: 4500 (R1), 4650 (R2), 4800 (R3)