Gold market analysis: Expectations of U.S. dollar interest rate cuts swing gold prices to strong side
On Tuesday (December 19), as the market swayed in expectations of an interest rate cut by the Federal Reserve, the weakening of the U.S. dollar drove the price of gold up slightly by 0.64%, closing at $2,040.19 per ounce.
Gold prices are currently struggling to find direction and further gains appear to be waiting in the wings. As expectations for three interest rate cuts in 2024 deepen and the inflation rate makes significant progress toward 2%, the dollar begins a downward trend and precious metals are expected to continue to make profits. Federal Reserve policymakers have described the recent rise in gold prices as “exaggerated” on the grounds that the central bank is focusing on how long monetary policy can last and should keep tightening policy to achieve price stability rather than lower borrowing rates now. Gold is currently in a stable equilibrium state, waiting for the next important economic fundamental data or news. If macro data this week, especially data reflecting inflation, continues to decline, it will further support the view that the Federal Reserve may cut interest rates more aggressively next year.
In addition, as the situation in the Middle East develops, geopolitical tensions have become one of the important driving factors for gold. Recently, the Red Sea has become a breeding ground for uncertainty. This is the spillover of the conflict in the Gaza Strip that has lasted for nearly two months. It is something the international community does not want to see, but there is a risk that this situation will intensify. If no resolution is found to the ongoing conflicts and tensions in the Middle East, gold will continue to dominate and make more gains. This is bound to pull down the U.S. dollar and bond yields, which is good for gold prices.
On a technical level, although gold prices retreated from a near eight-day high of $2,048 per ounce on Friday, the path of least resistance still appears to be upward. From the gold daily chart, as long as the 14-day relative strength index (RSI) remains above the midline and gold prices manage to hold the 21-day simple moving average (SMA) of 2016 US dollars per ounce, there is still room for gold prices to rise. The early gold rebound encountered resistance at a high pressure of $2,048/oz, which is also the 4-hour Bollinger upper rail pressure position. If the gold price breaks through this position, it is expected to continue to challenge the $2,065/oz area. For gold prices to return to the psychological level of $2,100/oz The uptrend is crucial. On the other hand, if gold prices close daily below the 21-day moving average, this would halt the bullish scenario and push the price back on a corrective bearish trajectory and towards the 50-day moving average of $1,982 per ounce, which is certainly possible. Sex is not big at the moment.
Wang Gang, Bank of China Guangdong Branch
These are my personal views only and do not represent the views of my institution.
2023-12-20 05:12:00
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