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Gold Prices Forecast: Retreating from Record High as Traders Question Valuation

By:
James Hyerczyk

Gold soared past its August 2020 high, driven by anticipation of US rate cuts and Fed's cautious stance, but rally is struggling to sustain momentum.

Gold Prices Forecast

In this article:

Highlights

  • Gold surpasses 2020 high, fueled by rate cut expectations.
  • Fed Chair Powell’s comments swing gold market.
  • Central bank purchases significantly impact gold’s price.

Gold Hits Record High Amid Rate Cut Speculation

Gold (XAU/USD) soared to new heights early Monday, surpassing its previous peak from August 2020. This surge was driven by growing market expectations of U.S. rate cuts, despite the Federal Reserve’s cautious outlook.

Fed’s Comments Boost Gold Rally

The rally in gold, which started gaining momentum in October, was further fueled by Fed Chair Jerome Powell’s remarks on the restrictive state of monetary policy. These comments led to a drop in both the dollar and Treasury yields, benefiting gold. Powell, however, warned against premature expectations of policy easing, despite market speculation of a rate cut by May.

Market Adjusts to Fed’s Cautious Approach

XAU/USD prices fell from session highs on Monday, perhaps reflecting the market’s response to Powell’s indication that the Fed isn’t in a hurry to reduce rates. This sentiment was mirrored in the Treasury market, with a rise in the 10-year yield. Upcoming U.S. labor data, expected to show payroll increases and stable unemployment rates, could further influence gold’s direction.

Central Bank Purchases Influence Gold’s Price

Central banks’ significant gold buying activity, with net purchases of 800 metric tons over the past year, has been a major factor in gold’s performance. Despite the lack of a clear catalyst, gold’s intraday price surge may have been driven by stop-loss orders, suggesting the potential for a short-term pullback.

Short-term Outlook for Gold

The immediate future for gold appears cautiously optimistic. However, the potential for rising real rates in the face of declining inflation might affect gold investments. While speculative net-long positions have risen, ETF holdings have not seen a significant increase, indicating a mixed sentiment in the gold market.

Technical Analysis

Daily Gold (XAU/USD)

Gold (XAU/USD) is currently trading above both the 200-day and 50-day moving averages, indicating a strong bullish sentiment.

Specifically, the current price at 2075.19 is significantly higher than both the 200-day moving average of 1947.23 and the 50-day average of 1949.64. This positioning above these key averages suggests a robust upward trend.

Furthermore, the price is above the main support level of 2009.00, reinforcing the bullish outlook. However, it’s close to the minor support level of 2067.00, indicating that this level could act as a pivot point. If the price holds above this minor support, it could sustain the bullish trend, but a break below this point might lead to a retest of the main support at 2009.00.

Overall, the market sentiment for gold appears bullish, supported by its position relative to key moving averages and support levels. However, it appears to be ripe for a daily reversal or a short-term correction.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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