Gold prices experienced a retreat after briefly reaching $2,070 on Friday, before paring back towards the day’s opening bids. The market’s anticipation of the Federal Reserve (Fed) initiating interest rate cuts has contributed to the rise of gold prices. However, receding US inflation has dampened these expectations, leading to a more cautious outlook on the pace of future Fed rate cuts. The US Annualized Core Personal Consumption Expenditures (PCE) Price Index showed a growth of 3.2% in November, slightly below market forecasts of 3.3%. This decrease in inflation has put downward pressure on the US Dollar and sparked investor interest in gold as a safe-haven asset.
Market Expectations and Investor Sentiment
Investors are increasingly hopeful that the Fed will implement a faster and more frequent series of interest rate cuts in 2024. However, there is a disparity between market expectations and the Fed’s own projections. The Fed’s dot plot shows a median forecast of 75 basis points in rate cuts until the end of 2024. Meanwhile, market participants are currently pricing in 160 basis points in cumulative rate cuts, with some even speculating on a rate cut as early as March. This divergence in expectations has contributed to a volatile gold market.
Gold has displayed strong intraday performance, surpassing the 200-hour Simple Moving Average (SMA) since breaking above it last week near $2,020. Additionally, the XAU/USD has followed a pattern of higher lows on daily candles since hitting a low of $1,820 in October. The 200-day SMA is providing long-term technical support, with the SMA rising towards $1,960. Despite near-term bullish sentiment, gold prices would need to fall below the $2,000 major handle before bearish patterns can emerge.
As the market prepares for the upcoming holiday market break, Friday’s trading session saw a notable reversal. The US Dollar trimmed its losses, leading to gold retreating from its earlier gains. The uncertainty surrounding the Fed’s rate cuts and the cooling off of US inflation have contributed to this tug-of-war between gold bulls and bears. With traders wrapping up the last full trading week of 2023, the conflicting factors influencing gold prices are likely to persist in the coming weeks, potentially leading to increased volatility.
Gold has recently retreated from its peak level of $2,070 as investor expectations for faster and more frequent Fed rate cuts have eased. The decline in US inflation and the market’s expectation gap with the Fed’s projections have contributed to the mixed sentiment surrounding gold prices. While gold has shown intraday strength and technical support, it would need to break below the $2,000 major handle to see a shift towards a bearish trend. As the market enters the holiday break, the conflicting factors impacting gold prices are likely to continue, creating an environment of increased volatility.
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