. Gold Forecast: Sellers Encouraged if $2,000 Holds

Gold Forecast: Sellers Encouraged if $2,000 Holds

Gold Forecast: Sellers Encouraged if $2,000 Holds

17 Feb 2024

Gold Forecast: sellers might be encouraged in case $2,000 holds as resistance.

  • Gold experienced back-to-back weekly losses, with the technical analysis indicating a persistent bearish sentiment.
  • Sellers might strengthen their control if the $2,000 level is confirmed as resistance.

Gold saw a decline for the second week in a row, influenced by the rising US Treasury bond yields and renewed strength in the US Dollar (USD). The upcoming economic calendar will highlight February PMI data and FOMC Minutes. The pivotal factor for the next directional move in XAU/USD will be whether $2,000 can sustain itself as resistance.

The price of gold moved lower in response to strong US inflation data.

Gold market

Gold experienced a slight decline at the start of the week, with modest losses recorded on Monday. Investor activity was subdued as they avoided substantial positions in anticipation of crucial inflation data from the United States, resulting in limited movement for XAU/USD.

On Tuesday, the US Bureau of Labor Statistics revealed that the Consumer Price Index for January exhibited a year-on-year increase of 3.1%, surpassing the market’s anticipated 2.9%. Furthermore, the Core CPI, excluding the volatile food and energy components, also rose by 3.9%, aligning with December’s figure. Following the release of the CPI data, the CME Fed Watch Tool indicated a probability of over 60% for the Federal Reserve (Fed) to keep the policy rate unchanged in the next two meetings. In response, the benchmark 10-year US Treasury bond yield rose to 4.3%, leading to Gold falling below $2,000 for the first time in 2024.

Following a 0.7% increase on Tuesday, the US Dollar (USD) Index experienced a correction, closing in negative territory on Wednesday. Consequently, XAU/USD traded within a narrow range of around $1,990, stabilizing after the significant drop observed the previous day.

On Thursday, US data revealed a 0.8% decline in Retail Sales, amounting to $700.3 billion in January. Retail Sales excluding Autos also contracted by 0.6% during the same period. Following the disappointing data, the 10-year US yield retreated to around 4.2%, facilitating a recovery for XAU/USD, which moved back above $2,000 in the latter part of the day.

Discussing inflation figures, Federal Reserve Vice Chair for Supervision Michael Barr expressed confidence among policymakers that inflation is progressing toward the 2% target. Barr, nevertheless, noted that he would require “ongoing positive data” before supporting a decision for a rate cut.

Gold was unable to sustain its recovery gains from Thursday as a result of producer inflation data released on Friday in the US. The Bureau of Labor Statistics (BLS) reported a 0.9% year-on-year increase in the Producer Price Index (PPI) for final demand in January, following a 1% rise in December and surpassing the market’s anticipated 0.6%. The annual Core PPI for the same period rose by 2%, compared to December’s 1.8% increase. Every month, the Core PPI increased by 0.5%, rebounding from the 0.1% decline in the previous month. The initial market reaction pushed the 10-year US yield back above 4.3%, hindering XAU/USD from extending its gains as the week concluded.

Gold price could react to PMI data next week.

On Monday, in honor of the President’s Day holiday, both stock and bond markets in the United States will remain closed.

The minutes of the January 30-31 policy meeting will be released by the Federal Reserve on Wednesday. During the post-meeting press conference, Fed Chairman Jerome Powell indicated that a rate cut in March was improbable. However, he acknowledged that an unforeseen deterioration in the labor market might prompt them to consider a rate reduction sooner. The robust January jobs report that followed the meeting led investors to withhold expectations of a March rate cut, preventing Gold from gaining momentum in the initial part of February.

Currently, investors are focused on whether the Federal Reserve will delay implementing a policy shift until June. Therefore, it is improbable that the Fed’s release will provide new insights into the timing of the rate cut.

This Thursday, S&P Global is set to unveil the preliminary Manufacturing and Services PMI reports for February. Should there be an unforeseen decline in business activity within the private sector, indicated by either of the headline PMIs falling below 50, it could reignite expectations for a rate cut in May, potentially providing impetus for XAU/USD. Investors will particularly scrutinize comments related to price pressures in the surveys. If input inflation in the service sector appears persistent, the USD may maintain strength against other currencies, thereby constraining the upward potential for the metal even in the event of disappointing PMI readings.

Gold technical outlook

The Relative Strength Index (RSI) indicator on the daily chart remains below 50, indicating the persistence of a bearish bias. Nevertheless, sellers might hesitate to anticipate additional weakness in Gold following the closure of XAU/USD above the psychologically significant $2,000 level on Friday. This is further supported by the presence of the 100-day Simple Moving Average.

If $2,000 remains as a solid support level, the next potential resistance levels could be identified at $2,020, representing the Fibonacci 23.6% retracement of the October-December uptrend and the 20-day Simple Moving Average (SMA). Following that, $2,030, corresponding to the 50-day SMA, may emerge as the subsequent resistance level.

Should Gold drop below the critical level of $2,000, where the 100-day Simple Moving Average (SMA) and a psychological threshold are situated, and begin utilizing this level as resistance, the subsequent bearish targets could be identified at $1,980 (representing the Fibonacci 38.2% retracement) and $1,965 (corresponding to the 200-day SMA).