At the end of last week's trading, the US dollar gained strong positive momentum following the announcement of stronger-than-expected US employment numbers, which confirms that the path of tightening the US Federal Reserve's policy has not moved the economy into recession. As a result, selling of gold price (XAU/USD) increased with losses reaching the support level of $1,994 per ounce before closing last week's exciting trading around the level of $2,004 per ounce. Therefore, this performance will be on track for a new important and exciting trading week, as many global central banks will announce their monetary policy decisions, led by the announcement of the US Federal Reserve.
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Will the price of gold decrease in the coming days?
Recently, the price of gold achieved a new record nominal close, the first in several years! This pivotal technical milestone is extremely bullish and is unleashing widespread interest in this pioneering alternative sector. clearly, traders love to chase upward momentum, and the financial media's enthusiastic coverage of new records puts the price of gold back on the agenda. Moreover, the last time gold reached record territory; this self-buying dynamic led to a massive price increase.
Meanwhile, fortunes can change quickly in the markets. Just two months ago in early October, the price of gold fell to $1,820 in a violent collapse driven by heavy short selling in gold futures. This extended the significant correction to 11.3% over 5.1 months, leaving the gold market out of sight. While the downtrend exploded, the contrarian situation for gold was much more pressing. At this bottom, we confirmed that new record highs were not far away.
However, the last record nominal closing of the XAU/USD gold price was $2,062 per ounce in August 2020. And despite the massacre that took place in the past two weeks, this is only 13.2% higher from here. Meanwhile, the recent decline in gold was driven by massive selling of gold futures contracts, leaving speculators' positions extremely bearish. Moreover, it is likely that these over-leveraged traders have exhausted their available capital to sell. This means that a new major rally in the gold price was coming.
Therefore, excessive selling positions with the specifications "ensure the occurrence of large buying operations to cover the exposure with an imminent average rebound, which will push gold sharply higher." And indeed, this happened, as gold rose to $2,005 after just a few weeks! Gold experienced some significant daily gains in mid-October due to the rebound buying of gold futures contracts. Thus, "a few more days like this will start writing gold in the record books. This will change everything for gold psychologically and begin to attract hordes of new investors. They love chasing winners with strong upward momentum." Gold took a break with a 3.4% decline in early November and then returned strongly.
Recently, the attack on record highs intensified on November 28 when it rose by 1.3% to $2,040 due to the Federal Reserve's conservative stance, which is usually hawkish. Also, this was a decisive breakthrough of over 1% above the massive psychological level of $2,000, leading to more interest in the sector and an upward trend. Then, a few days later, on the past Friday, December 1st, the gold price rose another 1.7% to reach the closing price at $2,071! Once again, the Federal Reserve's dovish speech was behind that strength.
Currently, that day was the last opportunity for senior officials of the Federal Reserve to talk about monetary policy before the Federal Open Market Committee (FOMC) meeting in mid-December. The blackout periods imposed by the Federal Reserve on public speaking began on Saturday before the FOMC meetings next Wednesday. The Federal Reserve Chairman had spoken at a university on that day, but he failed to counter the growing trader expectations that US interest rate cuts would come soon. Jerome Powell seemed very pessimistic at times.
Furthermore, markets responded to his comment: “The strong actions we have taken have moved our interest rate into restrictive territory, meaning tight monetary policy is putting downward pressure on economic activity and inflation. Obviously, monetary policy is believed to be affecting economic conditions with a lag, and it is likely that the full effects of our tightening have not yet been felt. The odds of an implied interest rate cut in March doubled to 80%!
Just a week ago, interest rates were expected to reach 10%, so Powell didn't sound too hawkish, leading to a violent repricing of rates. This forced the US dollar to decline, which helped to ignite a major rally in gold futures, sending the gold price to $2,071 per ounce. This was the first new nominal close for gold since August 6, 2020, at $2,062, over 3.3 years ago! Gold's rally is still only up 13.8% in a 1.9-month period, on the smaller side of the previous ones.
Shortly, the big gold rally back to the record zone occurred during the close of foreign markets. So, when they reopened late Sunday night New York time, frenzied buying to chase momentum rushed the gold price to near $2,135. Thus, this large and rapid rise left gold in a short-term overbought zone, so selling soon emerged, forcing it to decline to near $2,068 upon the entry of US trading on Monday. Finally, this record close changes everything, despite gold's pullback.
Gold Price Forecast and Analysis Today:
Technically, the price of gold (XAU/USD) may continue to move within narrow ranges, attempting to maintain the psychological resistance at $2,000 per ounce until the markets and investors react to the announcement of US inflation figures and global central bank statements, led by the US Federal Reserve. Therefore, any strong signals indicating a future tightening of the Federal Reserve's policy for 2024 will expose the price of gold to new setbacks, and the support at $1,985 per ounce will be the key to further bearish control over the trend. Conversely, if the central bank abandons signals of tightening, the dollar will weaken. Thus, this will allow bulls the opportunity to push the price of gold (XAU/USD) higher, with the most important resistance levels being $2,045 and $2,070 per ounce, respectively. Finally, caution and waiting for the reaction to important economic data and bank announcements for this week are advised.
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