Gold futures took some breaths as the yellow metal enjoyed a great start to the new trading year 2023. XAU/USD gold prices were trading at a nine-month high, but the recent rally was ostensibly halted by modest profit-taking. Market analysts say this does not mean that investors should expect a significant decline.
It's all about the Federal Reserve and the US dollar
According to trading, XAU/USD gold prices fell to 1904 dollars an ounce. This is after strong gains recently, towards the resistance level 1921 dollars an ounce, the highest price in nine months. Gold prices are up about 5% so far this year, with a 15% rise dating back to November.
In the same vein, silver prices, gold's sister commodity, struggled to maintain momentum from late last year. According to trading, silver futures contracts fell to $24,245 an ounce. All in all, the white metal has only gained 0.25% this year, but prices have jumped more than 30% since November.
The precious metals price path has been torn apart on expectations that the US Federal Reserve will begin to pause the current tightening cycle. A growing segment of the financial markets is starting to cut interest rates later this year, despite objections from the US central bank that it will continue to rise and perhaps pause and leave rates there to rise.
Market experts argue that this could backfire, mainly because there is a gap between market sentiment and the Fed's policy expectations.
However, we caution against assuming prices will simply continue to rise. Commerzbank analysts said in a note: "There is still a significant discrepancy between the interest rate path that markets expect and the path indicated by the Fed." And “if the market changes its view and moves more in line with the Fed, the price of gold risks facing a potentially serious downturn.”
More Fed officials are saying interest rates will likely peak at around 5%, suggesting that the tightening cycle may be over.
In general, gold is generally sensitive to interest rates because movements can affect the opportunity cost of holding non-yielding bullion. All of this has a negative effect on the dollar so far this year. The US Dollar Index (DXY) fell more than 1% in the first few weeks of 2023, its losses dating back to November. Yesterday, the US Dollar Index (DXY) fell 0.14% to 102.06 from an opening of 102.20.
A weaker dollar is beneficial for dollar-denominated commodities because it makes them cheaper for foreign investors to buy.
Other factors influencing gold market
The US Treasury market in general rose on Tuesday, with the benchmark 10-year yield rising 2.9 basis points to 3.54%. One-month bond yields jumped 1.7 basis points to 4.463%, while the 30-year yield rose 3.9 basis points to 3.662%. On the economic data front, New York's Empire State Manufacturing Index fell sharply in January, dropping to 32.9. This is down from -11.2 in December and worse than the market estimate of -9.
In other metals markets, copper futures fell to $4.174 a pound. Platinum futures fell to $1,059.70 an ounce. Palladium futures fell to $1,731.00 an ounce.
XAU/USD gold price forecast today:
- There is no change in my technical view of the performance of the XAU/USD gold price, as the general trend is still upward.
- Stability is above the psychological resistance at $1900 an ounce, confirmation of the bulls’ control over the trend.
- It moved the technical indicators towards overbought levels, unless gold gains more momentum or returns.
- The price of the US dollar is on the rise, as the XAU/USD gold price may be exposed to profit-taking sales at any time. This could push prices quickly to the $1879 and $1858 support levels, respectively.
There will not be a first break of the current general trend without moving towards the support level of $1820 an ounce. When gold gained more momentum, a move towards the top of $1955 an ounce cannot be ruled out. Today is an important trading day for gold and investor sentiment, so beware.
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