In a seesaw battle for dominance, gold prices (XAU/USD) have experienced a second consecutive day of gains, inching closer to the monthly peak achieved just a day earlier. The catalyst behind this upward momentum is the prevailing sentiment that the Federal Reserve (Fed) has concluded its policy tightening cycle. The consequent dip in the yield on the 10-year US Government bond to a two-month low adds to the allure of the non-yielding yellow metal. Market speculation of potential rate cuts by the US central bank in May 2024 further fuels the optimism surrounding gold.
However, a shadow is cast over the precious metal by the recently released Federal Open Market Committee (FOMC) meeting minutes from Tuesday. The minutes revealed a commitment by officials to tighten policy further if control over inflation wavers. This hawkish stance has given the US Dollar (USD) room for a modest bounce, potentially putting a cap on gold’s upward trajectory. Caution is advised for bullish traders, particularly in light of recent struggles to breach the psychological $2,000 mark.
Market Movers: Dovish Fed Hopes Drive Gold’s Positive Streak
The Federal Reserve’s commitment to prolonged higher interest rates, as revealed in the FOMC meeting minutes, initially propped up the US Dollar. Despite this, market participants are leaning towards a belief that the central bank will maintain rate stability, with potential rate cuts becoming a factor in early 2024. The 10-year US Treasury bond yield remains near a two-month low, redirecting flows towards gold, considered a safe-haven asset.
In contrast, the US housing market paints a less optimistic picture, with Existing Home Sales falling to the lowest level in over 13 years. However, the international front sees a potential easing of tensions as Israel and Hamas strike a deal for the gradual release of hostages in exchange for Palestinian prisoners and a temporary halt to hostilities. Surprisingly, these geopolitical developments have had minimal impact on the safe-haven appeal of gold.
The US military’s precision strikes against two Iran-backed facilities in Iraq, in response to attacks on US and Coalition forces, have not triggered a significant market reaction, indicating a lack of escalation in Middle East tensions.
Traders now turn their attention to key US macro data, including Initial Weekly Jobless Claims, Durable Goods Orders, and the revised Michigan Consumer Sentiment Index, for short-term market direction.
Technical Analysis: Gold Eyes Multi-Month Peak Amidst Caution
From a technical standpoint, gold has managed to reclaim the $2,000 psychological mark, but caution is advised due to repeated failures to sustain momentum beyond this level. Daily chart oscillators remain comfortably positive, avoiding overbought conditions. For a bullish confirmation, traders are advised to watch for a breakthrough above the $2,009-$2,010 range, marking the multi-month peak from October. This could pave the way for further gains toward the $2,022-$2,023 intermediate hurdle and the subsequent $2,038 region.
Conversely, downside protection is seen at the $1,991-$1,990 range, followed by the $1,978-$1,976 region. A breach of these levels could expose the weekly low at $1,965, potentially leading to a slide towards the 200-day Simple Moving Average (SMA) near $1,938-$1,939. The confluence of the 100- and 50-day SMAs around $1,932-$1,931, coinciding with the monthly low, holds significance as a pivotal point for short-term traders.