Technical Analysis

GOLD Price Analysis – Dec 28, 2023

By LonghornFX Technical Analysis
Dec 28, 20233 min

Daily Price Outlook

The Gold price (XAU/USD) experienced a slight pullback on Thursday, relinquishing some of its recent gains. After a robust rally over the past two weeks, profit-taking activities emerged as US Treasury yields began to show signs of revival, impacting the appeal of the non-yielding metal.

Fed Rate Cut Prospects Bolster Gold

Despite the recent dip, Gold's broader appeal remains optimistic. Market anticipation of the Federal Reserve (Fed) initiating rate cuts from March 2024, coupled with a clear downward trend in underlying inflation, continues to support Gold prices. The US Dollar's persistent weakness, spurred by early rate cut forecasts, aids in maintaining Gold's strength in dollar terms.

Fed Policymakers' Stance on Rate Cuts

Contrary to market consensus, Fed policymakers are wary of the market’s response to potential rate cut discussions. Chairman Jerome Powell and other members regard these discussions as premature in the current economic climate, especially given the uncertainty over inflation’s return to the 2% target.

Market Expectations and Fed Projections

Gold's initial rally was driven by the market pricing in a rate cut by the Fed from March 2024. The CME Fedwatch tool indicates over an 88% probability of a rate cut in March, with further reductions likely in May. This sentiment is strengthened by November's underlying inflation rate falling to 3.2%, aligning with the Fed's year-end projections.

Gold's Path in 2024: Rate Cuts and Economic Outlook

As 2024 approaches, the direction of Gold prices hinges on whether market expectations of rate cuts are overestimated or if economic shrinkage aligns with current forecasts. Some investors and Fed members believe market expectations might have excessively factored in rate cuts, as evidenced by the 6.31% decline in the US Dollar Index (DXY) from its October high.

US Economy's Resilience Amid Global Rate Cut Trends

While global economies are likely to initiate rate cuts due to easing price pressures, the US economy's resilience stands out. Its robust economic prospects might maintain inflationary pressures above the desired 2% rate, differentiating it from other economies facing potential contraction.

Upcoming Economic Data and Market Movements

With a relatively light economic calendar, investors may find some activity in the FX market due to the weekly Initial Jobless Claims data. Expectations are set for a slight increase in jobless claims to 210K from the previous 205K. Additionally, December’s employment and Manufacturing PMI data will be key factors in shaping investor strategies in the coming week.

GOLD Price Chart – Source: Tradingview
GOLD Price Chart – Source: Tradingview

GOLD (XAU/USD) - Technical Analysis

Gold continues to shine in the commodities market, showcasing resilience and bullish trends. As of today, Gold's price has risen to $2,086, marking a 0.45% increase. This upward movement is framed within a strategic range of technical levels, forecasting potential market directions.

The precious metal's immediate resistance is found at $2,077, with subsequent resistance levels at $2,101 and $2,133. These points may serve as hurdles for further price appreciation. Conversely, support is established at $2,022, followed by $1,992 and $1,967, providing a safety net against potential downturns.

The Relative Strength Index (RSI) at 71 indicates overbought conditions, which could signal a potential pullback or consolidation in the near term. Meanwhile, the Moving Average Convergence Divergence (MACD) value at 1.581, surpassing its signal line at 10.938, underscores the strong bullish momentum currently underpinning Gold's market performance. Notably, the metal's trading above its 50-Day Exponential Moving Average (EMA) of $2,075 further cements its short-term bullish trend.

Chart analysis reveals a symmetrical triangle breakout in Gold's trading pattern, suggesting robust upward momentum. This breakout points to the likelihood of continued buying interest, potentially driving Gold's price higher in the coming days.

In conclusion, the overall market trend for Gold remains bullish above the $2,075 level. This suggests that maintaining above this pivotal point could lead to testing higher resistance levels. The current market dynamics, characterized by bullish indicators and chart patterns, point towards a favorable short-term forecast for Gold.

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