GOLD Price Analysis – Dec 20, 2023

Daily Price Outlook

Despite the Federal Reserve's (Fed) dovish stance, the Gold price (XAU/USD) failed to maintain its upward rally and lost some of its traction, hovering within a narrow trading range near the weekly high. However, the reason for its downward trend can be attributed to the modest US Dollar uptick and a risk-on sentiment across the global equity markets.

The Federal Reserve recently signaled that they are not planning to raise interest rates soon to fight inflation. This has kept the yields on US Treasury bonds low, which is good for gold prices. However, some Fed officials are saying that interest rates might not stay low for long. On the other hand, the US Dollar is slightly gaining value, and global stock markets are doing well. Therefore, this limits the rise in the price of gold, which is considered a safe investment.

Fed's Shifting Stance and its Impact on Gold Prices

It's worth noting that there is a growing belief that the Federal Reserve (Fed) will shift away from its strict approach early next year, and this is helping boost the price of Gold. Chicago Fed President Austan Goolsbee emphasized that the central bank isn't committing to lowering interest rates soon and shouldn't be pressured by market expectations.

Cleveland Fed President Loretta Mester pointed out that the financial markets might be getting ahead of themselves in predicting when interest rates will be cut next year. Despite this, the markets have already factored in a 60% chance of rate cuts starting in March 2024, totaling 140 basis points in reductions for the year. The yield on the 10-year US government bond remains below 4%, and the US Dollar is just above a recent low.

Therefore, the expectation of the Federal Reserve easing its strict stance has boosted gold prices. Market anticipation of rate cuts in 2024, coupled with a lower US Dollar and bond yields, contributes to gold's positive momentum.

Market Dynamics Impacting Gold Prices and Future Focus

Moreover, the risk-on sentiment in the market was seen as another key factor that cap further gains in the gold price. However, this risk-on trend is fueled by expectations of lower interest rates in the US, heightened stimulus efforts from China, and a more accommodative approach from the Bank of Japan. These factors limit the appeal of safe-haven assets like gold.

Moving ahead, traders are now keeping an eye on the US Consumer Confidence Index for potential market moves this Wednesday. However, the primary focus remains on Friday's release of the US PCE Price Index, which is expected to have a significant impact on market sentiment.

GOLD (XAU/USD) - Technical Analysis

As of December 20, the gold market presents a nuanced picture. The precious metal is trading at $2,040, marking a slight increase of 0.01%. This movement positions gold above its pivot point of $1,980, indicating a potential shift in market dynamics. Key resistance levels are set at $2,015, $2,054, and $2,089, while support levels are found at $1,939, $1,904, and $1,870.

The technical indicators offer a deeper insight into gold’s trajectory. The Relative Strength Index (RSI) stands at 62, suggesting a bullish sentiment but not in the overbought territory. This indicates room for further upward movement. The Moving Average Convergence Divergence (MACD) presents a value of 0.655 against a signal of 5.63, further pointing towards potential bullish momentum.

Notably, the 50-Day Exponential Moving Average (EMA) is at $2,034, with the current price slightly above this level, reinforcing a bullish outlook in the short term. The observed double-top pattern at the resistance of $2,042 is a critical point. A breakout above this level could propel gold towards $2,060 and potentially $2,085, signaling a robust upward trajectory.

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