The recent surge in US yields and the strength of the dollar, combined with a statement from Federal Reserve Governor Christopher Waller advocating for a cautious approach to monetary policy, has put downward pressure on the price of spot gold (XAU/USD). This has led to an interesting area of technical support for the precious metal.
In addition to these factors, the latest retail sales numbers from the US have shown a significant increase in December 2023, surpassing market estimates. This, combined with job growth and headline inflation reaching 3.4%, indicates that the Fed may delay any rate cuts until the latter part of Q2. As a result, gold prices have been impacted, leading to a bearish trend in the short term.
Despite the current downward movement, the overall long-term trend for gold remains biased to the upside. On the weekly timeframe, the precious metal faces resistance around $2,075 but is expected to find support at $1,968. On the daily timeframe, a key psychological level of $2,000 and an AB=CD bullish formation at $1,990 suggest the potential for dip-buying interest to emerge. This indicates that while bears are in control for now, there is a possibility of an upward movement in the near future.
The accompanying image shows a technical analysis chart of the XAU/USD pair, indicating the potential levels of support and resistance.
Additional insight:
It’s important to consider the broader economic factors influencing gold prices beyond just technical analysis. Factors like inflation, interest rates, and economic growth can have a significant impact on the precious metal. In this case, the strength of the US dollar and the expectation of delayed rate cuts by the Fed have shifted investor sentiment towards gold. Furthermore, geopolitical tensions and global economic uncertainty can also contribute to fluctuations in gold prices. Therefore, a comprehensive analysis of both technical and fundamental factors is essential for understanding the movements in the gold market.
