GOLD Analysis
Afternoon: Gold Under Pressure Amid Dollar Rally and Risk-On Sentiment
Highlights:
- Dollar Rally and Risk Appetite: Strong dollar and equity market interest undermine gold’s appeal.
- Inflation Expectations and Fed Limits: Tariff-driven inflation fears could restrict Fed’s rate cuts.
- Key Economic Data Awaited: Data releases and Fed commentary will influence gold’s short-term trajectory.
Overview:
Gold prices declined to $2,620 per ounce as a stronger US dollar and a shift toward riskier assets dampened investor interest in the safe-haven metal. This movement followed Donald Trump’s recent presidential election victory, which boosted risk sentiment in equities, bitcoin, and other growth-oriented assets. Meanwhile, the dollar’s rally made gold more expensive for holders of other currencies, reducing its appeal as a store of value. The anticipation of future policy shifts, particularly on tariffs, has stoked inflation concerns, potentially limiting the Federal Reserve’s scope for aggressive rate cuts in 2024.
Market Dynamics and Fed Outlook
The current economic landscape has investors repositioning their portfolios, focusing on assets likely to benefit from Trump’s anticipated policies on tariffs and infrastructure spending, which could accelerate inflation. This inflationary outlook may restrict the Fed’s options to reduce interest rates as sharply as markets previously expected. As a result, markets now project the Fed funds rate to reach 4% by Q4 2024, slightly below last quarter’s peak forecast. Any reduction in rate cuts implies sustained pressure on non-yielding assets like gold.
Key Data to Watch
Investors await several key economic indicators and Fed comments this week, which could set the tone for the metal’s near-term price movement:
- ZEW Economic Sentiment: German and Eurozone indicators will signal broader economic confidence.
- US Optimism Index and Fed Speeches: Market participants will watch the RCM/TIPP Economic Optimism report and FOMC member remarks, particularly Chair Jerome Powell’s, for policy clarity.
Technical Analysis and Trade Action
Gold’s technical setup suggests a bearish trend in the near term, with critical support at $2,600 and resistance at $2,650. The precious metal could face further downside if it fails to breach resistance. Gold MCX prices reflect similar conditions, with support and resistance at ₹74,900 and ₹75,800, respectively.
Trading Recommendation: The recommended action is to sell on rallies around $2,620 with a target of $2,605/2585 and a stop loss above $2,645.
Support and Resistance Levels:
