Gold (XAU/USD) is experiencing a period of correction, with current trading activity indicating a likely consolidation phase. Despite the recent dip in price to near $2,063.00, gold maintains a positive trajectory, buoyed by market expectations of early interest rate cuts by the Federal Reserve (Fed) in 2024.
These anticipations stem from easing labor market conditions and a noticeable downward trend in underlying inflation, reducing the opportunity cost of holding GOLD and diminishing the strength of the US Dollar, the currency in which gold is priced.
As 2023 concludes, gold is projected to secure notable gains exceeding 13.50%. The growing sentiment for the Fed to initiate rate reductions from March 2024 onward continues to underpin the bullish outlook for gold into the next year.
Key economic indicators, such as the United States Nonfarm Employment and ISM Manufacturing PMI for November, will further influence gold’s price movements.
Reinforcing this outlook, US Treasury yields have shown resilience, rebounding to near 3.90%, while the US Dollar Index (DXY) has climbed to approximately 101.35. The fading impact of the Fed’s ‘higher-for-longer’ interest rate stance is shifting investor focus towards non-yielding assets like gold, particularly as the probability of a 25 basis point rate cut to 5.00-5.25% in 2024 stands at 73%, according to the CME Fedwatch tool.
Recent labor data from the US Department of Labor, indicating higher-than-expected Initial Jobless Claims, aligns with the Fed’s recent unchanged interest rate policy. This softening inflation and labor market slowdown suggest that the Fed might ease its tight monetary policy to protect the US economy from the risks of overtightening.
Looking ahead, significant FX market movements are less likely this Friday due to holiday sentiment.
However, the upcoming week, featuring US Manufacturing PMI from the Institute of Supply Management (ISM) and November Employment data, will provide critical insights into the labor market, potentially guiding the Fed’s policy decisions.
Gold Technical Outlook:
Presently, GOLD is facing downward pressure, testing the critical support level at 2065.70. Traders should exercise caution, as a confirmed break below this level could alter the bullish narrative, potentially steering prices toward a near-term target of 2016.90. For the bullish trend to persist, gold needs to maintain above 2065.70, with an immediate target set at 2100.00.
The expected trading range for today spans from a support level of 2050.00 to a resistance point at 2090.00. The trend for the day is projected to be bullish, contingent on gold’s ability to uphold key technical levels amidst evolving market dynamics and economic indicators.