Gold prices are continuing their upward trajectory, edging 0.3% higher and on track for a sixth consecutive weekly gain, barring any negative impact from the upcoming U.S. jobs report. As the yellow metal strengthens, many are left wondering what is driving this rally and whether it can continue. Below, we examine the key factors influencing gold’s performance and potential risks ahead.
Factors Driving Gold’s Strength
Gold’s recent rally is underpinned by several key factors, including ongoing geopolitical uncertainties, concerns over inflation, central bank easing, and consistent demand from both central banks and retail investors. Despite rising global bond yields—which typically put downward pressure on gold—the trend has paused since mid-January, allowing gold to maintain its momentum. The positive influences on gold prices have, so far, outweighed the negative ones.
Trump’s Trade Tariffs: Impact on Gold Prices
Former President Trump’s trade tariff policies were a significant source of market uncertainty during his time in office. His initial tariff threats prompted a surge in demand for safe-haven assets like gold. However, his recent decision to delay tariffs on Mexico and Canada suggests a more cautious approach, which may reduce gold’s appeal as a hedge against trade risks. Although gold’s rally has temporarily stalled, prices remain elevated.
Record Highs: Will Gold Keep Climbing or Face a Correction?
Gold has recently hit record highs, and the pressing question now is whether it can continue its ascent toward the $3,000 mark, or if a correction is imminent. Much of this will depend on upcoming economic data, including job growth and inflation trends, as well as the Federal Reserve’s policy decisions. If signs of economic strength emerge, especially in job growth or inflation, gold could face short-term pressure, particularly if bond yields rebound. However, gold has already proven resilient to recent rises in bond yields, making it uncertain whether the pattern will hold.
U.S. Jobs Report: A Potential Market-Mover
Traders are eagerly awaiting the U.S. jobs report, which could influence market sentiment. According to analyst Matt Weller, the forecast for job growth is between 175,000 and 225,000, which could lead to a brief dip in gold prices if traders revise their expectations for future Fed rate cuts. However, a weaker-than-expected jobs report might spark renewed demand for gold, especially if the U.S. dollar weakens.
Inflation: A Crucial Factor for Gold
Beyond the jobs report, inflation remains a critical factor driving gold prices. Next week’s Consumer Price Index (CPI) report will be a key focus for traders. Strong inflation readings could delay anticipated rate cuts by the Federal Reserve, which would likely boost the dollar and bond yields, putting downward pressure on gold. Conversely, weaker inflation could provide further support for gold, giving bulls another reason to push prices higher.
Technical Analysis and Trade Outlook
Gold’s technical outlook remains bullish, with prices hitting repeated all-time highs. As a result, bearish trades are generally not advisable unless executed on a short-term basis. That being said, a pullback or correction seems overdue, and dip-buyers will be watching for potential entry points. The Relative Strength Index (RSI) has entered the “overbought” zone, above 70.0 on multiple timeframes:
Daily RSI: Approximately 75, indicating overbought conditions.
Weekly RSI: Also above 70, showing a negative divergence compared to the price highs seen in October 2024.
Monthly RSI: At 78+, though not as extreme as the levels seen in October 2024 or July 2020.
With the RSI at these elevated levels, a price pullback seems inevitable, either through consolidation or a sell-off. It’s important to note that the RSI itself is not a “sell signal” but rather a warning that prices may have risen too quickly.
Additionally, gold has reached the 127.2% Fibonacci extension of its recent price drop, which occurred between October and November, at $1,859. Fibonacci extension levels are often used by traders to identify potential price targets during strong trends, and the 161.8% extension points to a potential target of $2,946.
Support Levels to Watch
If gold experiences a pullback, the first key support level is around $2,845. Below that, the October high near $2,790 will serve as another important support area. Further downside could see gold testing the range between $2,710 and $2,725.
Conclusion
Gold’s current rally remains strong, but traders should remain vigilant. While the technical trend is positive, the market’s sensitivity to economic data and geopolitical developments means that prices could shift quickly. With gold in overbought territory, a correction is possible, but for now, the outlook remains bullish—pending any significant changes in the economic landscape.
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