Gold spot prices (XAUUSD) are enjoying a five-day rally, the longest since late November, and are on course for a third consecutive week of gains, fuelled by strong expectations of a Federal Reserve rate cut in March 2024. Declining inflation and the central bank’s desire for a soft landing are key factors driving this shift. Markets are now pricing an 88% chance of a rate cut, potentially leading to 150 basis points of total reductions next year.
Geopolitical tensions in the Middle East and ongoing conflicts add to gold’s safe-haven appeal. Despite short-term fluctuations tied to the Israel-Hamas conflict, market sentiment has driven the non-yielding bullion to a 14% gain for the year, its best performance since 2020. Analysts foresee improved liquidity in 2024 as rate cuts materialize, potentially bolstering gold’s upward trajectory.
Technical
Gold’s 4-hour chart paints a bullish picture, with price action comfortably nestled within an ascending channel. With the price above key SMAs [20 (green line), 50 (blue line), and 100 (orange line)], the recent bullish crossover of 20-SMA and 50-SMA above 100-SMA could point to the presence of positive momentum. RSI at 62.52 signals neutral momentum.
Gold’s bullish outlook remains intact, supported by a favourable fundamental backdrop and technical indicators. While a short-term correction is possible, the path of least resistance appears skewed towards further gains, particularly if rate-cut bets continue to firm up. Short-term trading opportunities could arise towards the initial resistance at $2,088.38/ounce should the bulls sustain a push higher. A break above the $2,088.38/ounce level would likely bring the $2,100.44/ounce resistance level into play in the short term.
However, with the RSI trading flat, there is potential for a short-term push to lower levels. Therefore, Short-term trading opportunities could exist towards the support level at the $2,061.63/ounce price level should the bears sustain a push lower. A break below the initial support could confirm the bearish momentum, likely bringing the $2,048.04/ounce support level into play.
Summary:
Gold’s upward trajectory is poised to continue in the near term, fuelled by a confluence of positive factors. The Fed’s potential pivot towards rate cuts remains the key driver, with geopolitical tensions and a weak dollar providing additional support.
Technical indicators suggest short-term movements towards resistance at $2,088.38/ounce or support at $2,061.63/ounce.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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