GOLD Analysis
Afternoon: Gold Drops Below $2,630 Amid a Strengthening Dollar and Fed Speculations
Highlights:
- Gold dropped below $2,630 as the US dollar strengthened amid Fed rate expectations.
- Stalled inflation progress fuels a cautious Fed rate-cutting outlook, with a 65% chance of a 25 bps cut.
- Israel-Hezbollah ceasefire holds despite mutual accusations, easing geopolitical concerns.
Overview:
Gold prices fell below $2,630 as the US dollar strengthened, reflecting market anticipation of upcoming US economic data and Federal Reserve commentary. Traders are keenly awaiting reports on job openings, wage growth, manufacturing and services activity, and the unemployment rate, which are expected to offer insights into the Fed's monetary policy direction. Federal Reserve Chairman Jerome Powell and other officials are scheduled to speak this week, adding to the anticipation.
Last week's data revealed that progress in curbing inflation had stalled, prompting expectations of a more cautious approach to interest rate reductions. Markets currently estimate a 65% likelihood of a 25-basis-point cut at the Fed’s next meeting, with projections for only two additional cuts in 2025.
Geopolitical factors also contributed to market sentiment, as reports indicated that the ceasefire between Israel and Iran-backed Hezbollah held despite mutual accusations of violations, easing immediate concerns of escalation.
Technical indicators suggest gold faces support at $2,600 and resistance at $2,650. Traders are advised to sell on price rises near $2,635, targeting $2,612, with a stop loss set above $2,650.
Key Economic Data to Watch:
- Euro Zone: Final Manufacturing PMI, Unemployment Rate.
- US Zone: ISM Manufacturing PMI, ISM Manufacturing Prices, Final Manufacturing PMI.
Federal Reserve’s Role:
Markets are closely watching economic data to assess the Federal Reserve's trajectory for interest rates. A batch of key reports, including job openings, private wage growth, and manufacturing sector activity, will shed light on the economic landscape. Federal Reserve officials, including Chairman Jerome Powell, are set to deliver speeches that could further clarify the Fed's policy stance. Current probabilities suggest a 65% chance of a 25-basis-point rate cut in December, although lingering inflation may slow the pace of future cuts.
Geopolitical Developments:
The geopolitical landscape, particularly in the Middle East, continues to play a crucial role in influencing safe-haven demand for gold. Reports indicate that the ceasefire between Israel and Hezbollah remains intact despite violations, providing temporary stability to the region.
Outlook:
Gold's near-term performance is expected to hinge on upcoming economic data and the Federal Reserve's tone on monetary policy. While geopolitical tensions are subdued for now, any resurgence could shift investor sentiment and boost safe-haven demand. Traders should remain cautious, aligning strategies with evolving market dynamics.
Actionable strategy:
Sell on upward moves around $2,635, targeting $2,612 with a stop loss above $2,650.
Support and Resistance Levels:
