Despite consolidating for a third consecutive week, gold remains robust as investors continue to step in and purchase dips, indicating strong underlying demand.
Christopher Vecchio, Head of Futures & Forex at Tastylive, observed, “This recent correction seems to be nothing more than a bull flag, showcasing remarkable resiliency, especially as the U.S. dollar experiences one of its most significant recoveries in years.”
While volatility is expected to persist, analysts agree that the current environment, marked by bullish long-term fundamentals, presents opportunities to buy dips like those witnessed recently. James Stanley, Senior Market Strategist at Forex.com, stated, “For nearly six months, I’ve had no interest in shorting gold. Instead, I’m looking for pullbacks to enter long positions. The underlying trend is logical: central banks globally continue to adopt a dovish stance.”
As of now, December gold futures are trading at $2,674.90 an ounce, reflecting a modest gain of less than $10 from the previous week. The market faced considerable selling pressure as traders recalibrated their expectations regarding aggressive easing from the Federal Reserve. The recent consolidation in gold prices comes as the U.S. dollar has increased by 2% since the month began, testing resistance levels below 103 points.
Higher-than-expected consumer inflation data has dampened predictions of a 50 basis point rate cut by the Federal Reserve next month. However, analysts note that, despite a reduction in aggressive easing expectations, the central bank is still on track to cut rates between now and 2025.
Stanley emphasized that following the CPI data release on Thursday, gold had ample reasons to dip below $2,600 but managed to maintain its position. “Inflation persists, but other market drivers are at play, reflected in the quick buying of gold dips,” he explained.
While the Federal Reserve leads this new easing cycle, it is not alone. Next week, the European Central Bank will conduct its monetary policy meeting, with growing expectations of a 25 basis point rate cut.
Jack Allen-Reynolds, Deputy Chief Eurozone Economist at Capital Economics, remarked, “The dovish shift among policymakers is unsurprising given recent economic data, which indicates stagnation in Q3 as per the Composite PMI.”
Vecchio added that declining interest rates account for only part of gold’s price dynamics. He highlighted that deglobalization and increasing government debt levels are likely to continue weakening the U.S. dollar, thus providing long-term momentum for gold. “Regardless of who holds office, deficit spending will persist,” he noted.
He also anticipates that China will continue to challenge the U.S. dollar’s status as the world’s reserve currency. “Until the exceptionally strong environment changes, I find it hard to recommend trading gold from any position other than long,” Vecchio asserted.
The U.S. economic calendar appears relatively light next week, but markets will be attentive to key consumption data, with economists keen to see if consumer spending remains resilient.
Some analysts caution that strong economic indicators impacting the Federal Reserve’s easing cycle could put downward pressure on gold prices in the near term. Conversely, others argue that, regardless of economic data and interest rates, gold remains well-supported as a geopolitical safe-haven asset.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, noted, “In the short term, geopolitical factors are significantly influencing prices. As long as investors seek safety, we may see gold prices rise, potentially reaching the $2,800 mark. Without geopolitical tensions, however, we could see a decline toward the $2,500 level.”
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