Last week witnessed a nearly 1% dip in the gold spot price (XAUUSD) as traders tempered their expectations of impending rate cuts in March. The likelihood of such cuts, which stood at 81% just a week ago, has now subsided to 45%, according to the CME FedWatch Tool.
Despite geopolitical tensions in the Middle East providing some support to the non-yielding bullion, the outlook is influenced by the anticipation of interest rates maintaining a higher trajectory and positive signals from a robust US economy. The safe-haven appeal of gold has waned as strong US retail sales and a resilient labour market have been reported. Nevertheless, the upcoming week brings the release of crucial US GDP statistics and the PCE Price Index, offering the market valuable insights into the economic landscape. These releases may prompt a re-evaluation of expectations regarding the timing of the first round of US rate cuts, potentially triggering directional price action in the gold market.
On the 4H chart, a descending channel has formed, with the 25-SMA (green line) crossing below the 50-SMA (blue line) in confirmation of bearish momentum. However, a recent breakout from the dynamic resistance has led the spot price toward the Fibonacci midpoint at $2,029.69/ounce, where it faced stern resistance and potentially triggered a retracement.
The current pullback could look for support at $2,016.03/ounce, the level where the initial breakout was initiated. This could act as a pivot point to confirm the bullish momentum, or it could fail to provide support, in which case it could signal a false breakout. Should the support fail, the spot price could continue trickling lower toward $2,004.97/ounce.
However, if buyers are found at $2,016.03/ounce, the breakout could be sustained if the price can pivot and clear the resistance at $2,029.69/ounce. The 61.8% Fibonacci golden ratio at $2036.43/ounce could come into play above the 50-SMA before the 100-SMA (orange line) poses another hurdle close to $2,040.01/ounce.
The gold spot price has been under pressure from recent developments in the economy that diminishes its safe-haven appeal. However, a recent breakout from a descending channel provides hope to the bulls that a new uptrend could form if the price remains above the $2,016.03/ounce level following the current retracement.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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