Gold price (XAU/USD) has started the new year on a positive note, reversing a major part of its recent losses. The precious metal remains in a modest uptrend, benefiting from dovish Federal Reserve (Fed) expectations and geopolitical risks. However, the rising US bond yields and a stronger US dollar may pose challenges to further gains in the gold price.
The gold price has found support from several positive factors. Firstly, market expectations of a rate cut by the Federal Reserve in March have grown, leading to a decline in yields, and making gold a more attractive investment. Additionally, geopolitical risks, such as the war in Ukraine and the Middle East, as well as China’s economic woes, have contributed to the safe-haven appeal of gold.
While the gold price has been able to gain some ground, the recovery in the US dollar and rising US bond yields may limit further upside. The US dollar has strengthened from a five-month low and is supported by the increase in US Treasury bond yields. These factors may deter investors from allocating more funds to gold.
Market participants have shown caution amidst relatively low trading volumes and are waiting for the release of the FOMC minutes on Wednesday before making any significant moves. They are also keeping an eye on important US macro releases scheduled for the beginning of the month, which could provide further impetus for the gold price.
Despite the challenges, the gold price is expected to continue its appreciating trend in 2024. Hopes that the Federal Reserve will achieve a soft landing for the economy and ease its policy as early as March have bolstered the outlook for gold. The CME’s FedWatch tool indicates a high probability of a rate cut in March and a cumulative rate cut of 150 basis points by the end of the year.
From a technical perspective, the gold price faces immediate resistance around the $2,077-2,078 region, followed by the $2,088 zone, which represents a multi-week high. A breakout above these levels could propel the gold price towards retesting its record peak of around $2,144 set in early December. On the downside, support levels are identified around $2,060-2,058, $2,048, and $2,040. A breach of these support levels may lead to a further decline towards the $2,020 intermediate support, the 50-day Simple Moving Average (SMA) near $2,006, and the psychological level of $2,000.
The gold price is influenced by the monetary policy decisions of the Federal Reserve. The Fed adjusts interest rates to achieve price stability and foster full employment. When inflation is high, the Fed raises interest rates, strengthening the US dollar. Conversely, when inflation is low or unemployment is high, the Fed may lower interest rates, weakening the US dollar. The Fed holds policy meetings throughout the year to assess economic conditions and make monetary policy decisions. In extreme situations, the Fed may resort to non-standard measures like Quantitative Easing (QE) to increase credit flow.
The gold price has regained positive traction at the start of the new year, benefiting from dovish Fed expectations and geopolitical risks. However, the US dollar’s recovery and rising bond yields may hinder further gains. Market participants remain cautious and await the release of the FOMC minutes and important US macro releases for guidance. Despite these challenges, the gold price is expected to continue its upward trend in 2024, supported by expectations of a rate cut and geopolitical uncertainties.
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