The gold market closed the week at a nine-month high as renewed safe-haven demand pushed prices above $1,920, which some analysts highlighted as a key resistance level. Analysts interpret the market and share their forecasts.
“This guarantees a short-term reaction of the gold price”
Analysts say heightened economic uncertainty and shifting market fundamentals could help prices rise to $2,000 sooner than expected. “There is a gravitational pull towards $2,000,” said Phillip Streible, chief market strategist at Blue Line Futures. It will only rise as prices continue to rise,” he says.
Gold’s rally on Friday came after US Treasury Secretary Janet Yellen sent a letter to Congress warning lawmakers that the government could reach its debt limit on Jan. The weak majority of the Republican Party in the US House of Representatives is expected to complicate negotiations. Thus, growing fears that the United States could potentially meet its debt obligations have recently increased. Some Republican politicians are already saying that any increase in the debt limit should be accompanied by drastic cuts in spending. Edward Moya, senior North America market analyst at OANDA, comments:
We knew the debt problem would be a problem in 2023. However, we did not expect it to gain importance in such a short time. The short-term response of gold is guaranteed. This shows how much uncertainty there is at the moment.
“There is a lot of momentum in the market right now”
But Moya says short-term safe-haven demand should continue to support gold prices. He also states that there are much larger factors affecting the gold market. “It is too early to see how this will turn out,” Moya said. Positive for gold in the short term. However, if there is great chaos, it will support the dollar and put pressure on gold,” he said.
Moya also notes that gold is seeing some resistance at $1,950, and if that breaks, there isn’t much to stop the market from rising to $2,000 again. In this context, “There is a lot of momentum in the market right now and I think $2,000 is a target. When we get there is just a question,” he says.
Fed’s monetary policy remains critical driver for gold
Analysts look beyond near-term volatility and say that the most significant impact on gold continues to change expectations about the Federal Reserve, with the inflation-modifying effect on bond yields and the U.S. dollar. Last week’s consumer inflation data showed that price pressures have cooled in line with expectations. It also gives the Fed room to slow the pace of its aggressive monetary policy stance, some analysts say.
cryptocoin.com According to CME’s FedWatch Tool, markets see a more than 90% probability that the US central bank will increase the Fed Funds rate by 25 bps next month. Investors predicting that the Fed is nearing the end of its tightening cycle dragged bond yields down and weighed on the US dollar. Kevin Grady, head of Phoenix Futures and Options, notes that investors are seeing a fundamental shift in the financial markets that supports gold prices, even as the market momentum appears technically overstretched. Accordingly, Grady makes the following statement:
I was expecting a radical change in the market and I think we are starting to see it. The bond market is signaling that interest rates will be lower than the Fed says. This means bullish for gold.
“The markets take the stairs up and the elevator down!”
Although gold prices have room to rise next week, some analysts say investors should be a little cautious at these levels and not chase the market. While many analysts expect gold to rise strongly in the near term, they point out that investors should try to buy the precious metal from the dips.
Darin Newsom, senior market analyst at Barchart, is predicting higher gold prices as both short-term and medium-term trends are definitely up. However, he adds that bullish traders may need to be agile as gold can recover quickly. He says the key to gold’s short-term momentum will be the sharply oversold US dollar. In this context, he comments:
Once gold decides to turn around and that could be at some point next week, it could drop fast. Markets go up by stairs and down by elevator.
Marc Chandler, managing director of Bannockburn Global Forex, also says the US dollar is oversold. He notes that despite the cooling of inflation, the Fed is still expected to raise interest rates, which could help curb the dollar’s downward momentum.
Davos and economic data to watch
The U.S. markets saw Martin Luther King Jr. It will see a shortened trading week as it is closed for the day. However, there will be plenty of economic data to digest throughout the week. Analysts say the market may be susceptible to comments made during the annual World Economic Forum (DEF), which begins next week in Davos. The DEF expressed its concerns about the growing geopolitical uncertainty and the threat of continued inflation. Analysts state that any bad outlook could further increase gold’s safe-haven appeal.
Markets will also receive more retail sales figures, inflation data and regional manufacturing figures from the New York Federal Reserve and Philadelphia Federal Reserve. Economists also say that investors should keep an eye on the Bank of Japan’s monetary policy decision. Because they state that this may provide some upward momentum for the US dollar and this will also suppress gold.
weekly gold technical analysis
Technical analyst Christopher Lewis describes what he saw in the technical drawing of gold as follows. Gold markets were once again bullish during the week and broke above the $1,900 level and of course the channel it is in. Therefore, it looks like we are entering the impulsive phase of the market. Also, short-term pullbacks will likely result in good buying opportunities. I’m not interested in short selling in this market, although I think we might pull back a bit.
At this point, I predict the market will likely look towards the $1,950 level and then the $2,000 level. I don’t know if we’re going to get there easily, and I definitely think we’re late to pull back a bit. However, this is a very bullish market overall. So, I’m not interested in trying to get short, at least not anytime soon. That being the case, I think there is a situation where the market is definitely leaning in one direction. But if you can avoid it, you don’t necessarily want to chase it all the way here.
In the long run, there was a negative correlation between the US dollar and gold. Recently, however, this correlation has broken down. Gold is rising more than anything else as a form of wealth protection. That’s why, at least at the moment, I’m not that concerned with what’s going on in the Forex markets when it comes to gold trading. I will look for value and hopefully find it in the next few weeks.
