Gold Price Analysis – Feb 23, 2024

Daily Price Outlook

Despite escalating geopolitical tensions in the Middle East, the price of gold (XAU/USD) failed to extend its previous gains and turned bearish, dropping slightly below the $2,020 mark. However, this bearish trend in the precious metal can be attributed to the Fed's hawkish outlook, which tends to support the US dollar and US bond yields, contributing to gold's losses. It's worth noting that the Federal Reserve is not planning to lower interest rates soon, according to the minutes from their late January meeting and recent statements by key officials.

Apart from this, the ongoing risk-on market sentiment was seen as another key factor that kept the gold price lower as investor's preference for riskier assets over safe-haven assets like gold contributed to the downward pressure on gold prices.

In contrast to this, the losses in the gold price could be short-lived and temporary as the risk of a further escalation of geopolitical tensions in the Middle East could bolster demand for safe-haven assets like gold. However, the US dollar is struggling to gain traction despite the Fed's hawkish outlook. This was seen as another key factor that could help the gold rice to limit its losses.

Fed's Stance on Interest Rates and Its Impact on Gold

On the US front, the recent FOMC meeting minutes and remarks from Fed officials suggest that there's no rush to cut interest rates. Fed Vice Chair Jefferson thinks rate cuts might happen later in the year, but only if the economy shows clear signs. Meanwhile, Philly Fed President Harker acknowledges the possibility of cuts later on but is cautious about doing so too soon due to concerns about inflation.

At the same time, Fed Governor Cook thinks it's too early to lower rates because we're not sure about inflation trends. Whereas, Governor Waller advises waiting to see how inflation goes.

Therefore, the indication of no immediate interest rate cuts by the Fed reduces the appeal of gold, as higher rates typically underpin the dollar.

Impact of Market Sentiment on Gold Prices and Labor Market

On the other hand, the risk-on-market sentiment has played a major role in undermining the safe-haven gold price as investors may prefer riskier assets over safe havens like gold, reducing its appeal and potentially leading to price declines. However, the risk-on market sentiment was backed by the Fed's hawkish outlook, which positively impacts market sentiment by signaling confidence in the economy, leading to increased investment and a stronger dollar.

Furthermore, the decrease in unemployment insurance claims is generally positive for market sentiment as it suggests a strong labor market, which can boost consumer confidence and spending. According to recent data, the number of Americans applying for unemployment benefits decreased from 213K to 201K last week. This indicates a strong job market, likely boosting market sentiment.

Tensions in the Middle East and the Impact on Gold Prices

Apart from this, the recent escalations in the Middle East, with Israel intensifying attacks on Gaza and Yemen's Houthis targeting ships in the Red Sea, have heightened concerns of a wider conflict. Consequently, investors are seeking protection in gold, driving up its price.

Gold - Technical Analysis

In the recent trading session, gold has exhibited a modest upward trajectory, with its price inching up by 0.11% to stand at $2028.165. This increment, although slight, underscores the intrinsic value investors continue to place in gold as a safe-haven asset amidst fluctuating market conditions. The 4-hour chart reveals a nuanced but palpable optimism, as gold navigates through economic uncertainties and shifts in global monetary policies.

The technical framework for gold is currently anchored around a pivot point at $2023.361, offering a lens through which to view potential price movements. Resistance levels at $2038.689, $2053.285, and $2065.708 delineate the thresholds that could challenge bullish momentum. Conversely, support levels established at $2013.200, $1999.912, and $1988.187 serve as critical junctures, potentially bolstering gold's price in the face of downward pressures.

The Relative Strength Index (RSI), positioned at 60, indicates a bullish momentum without venturing into overbought territory, suggesting that there's room for further upward movement. The 50-day Exponential Moving Average (EMA) at $2019.265 further validates this bullish sentiment, as the current price level comfortably exceeds this average, reinforcing the strength of the ongoing trend.

Given the alignment between the observed technical indicators and the key price levels, the outlook for gold appears cautiously optimistic. Investors might consider a strategic approach by initiating buy positions above $2023, with an eye towards a take profit level at $2038, while setting a stop loss at $2015. This approach not only capitalizes on the potential for further gains but also prudently manages risk, reflecting a balanced response to the prevailing market dynamics.