The January rally underneath pushed prices to a nine-month high on Friday. However, market experts do not rule out the possibility of some consolidation in the gold price ahead of the Fed’s February meeting.
Gold outlook, strong bullish
Analysts describe a rapid rally below and warn that conditions are starting to appear overbought. Edward Moya, senior market analyst at OANDA, comments:
It will be wavy. I’m neutral on gold until the Fed meeting on Feb. The main resistance is at $2,000. But I’d be surprised if we get above $1,950. We’ll probably be consolidated here until the Fed meeting.
The overall outlook for gold remains strongly bullish. Many analysts expect the precious metal to hit $2,000 later this year and potentially later this quarter. Only short-term view that seems potentially overstretched. “It has been a movement that is rising at a higher rate,” Moya said. “$1,900 may not be a strong support level if selling pressure starts,” he says.
Is gold overbought?
Frank Cholly, senior market strategist at RJO Futures, stated that gold is technically approaching the overbought zone, adding that the bullish trend remains strong. The strategist makes the following assessment:
The gold market is rising at a serious rate. It sees higher highs, higher lows and higher closes. This is good. And the US dollar is showing a bearish trend. Any correction at these levels becomes a buying opportunity. I expect gold to continue its higher trend. I’m bullish until I see a pullback to $1,850.
“The price of gold can easily reach $2,000”
The $2,000 target for Cholly is still largely on the table. In this context, gold is seeing a clear path to $2,000, although it struggled a bit to close at $1,950. The strategist states that gold is a unique market, as higher prices make the asset more attractive. In this regard, Cholly makes the following statement:
In other markets, such as supply- and demand-driven raw goods, you reach a point where high prices are the remedy for high prices. This means that people stop buying at a certain price target or that manufacturers increase production. For gold, the higher it goes, the more people want it. We could easily reach $2,000 in the first half of this year, if not sooner.
Fed expectations
The beginning of the year saw recession fears and activity in the Treasury, which is good for gold. “Since the beginning of the year, gold has had a good start. I still maintain my 2023 bullish outlook. We’ve seen some recovery. So there might be a weakness here,” she says.
cryptocoin.comAs you follow, all eyes will be on the Fed’s message on February 1. Markets are pricing downshifts in a 25 bps increment. That’s a significant change in pace after the Fed hiked 50bps in December from 75bps in the fall. “The Fed has given enough messages,” Moya said. But the labor market is a bit confusing. There are enough weaknesses in the data already. They will likely drop to 25 basis points. The big risk for the Fed is that inflation will not come down completely,” he comments.
Cholly adds that monitoring the US dollar over the next few weeks is critical as markets expect a lower dollar as the Fed slows rate hikes.
Data agenda for next week
Several critical data will be released next week, including the US Q4 GDP and core personal consumer spending, the Fed’s favorite measure of inflation. Despite worsening manufacturing and services sector data, fourth-quarter GDP is expected to show the US economy grew 2.6% after reporting 3.2% growth in the third quarter. James Knightley, ING’s chief international economist, comments:
Consumer spending will be a major driver, given the strong performance in October. But other than that, growth will largely focus on net trading and inventory building. This is not ‘good’ growth. Inventories are rising, partly because of improved supply chains and also because demand is not as strong as many businesses expected, while imports are falling due to a worsening domestic growth history. GDP growth numbers will be much weaker in the next few quarters.
Meanwhile, the core PCE price index is expected to slow to 4.4% year-on-year in December from 4.7% in November. “This would confirm the easing trend in price pressures,” Knightley said. No Fed speakers scheduled due to proximity to the upcoming FOMC meeting and self-imposed ‘quiet period’. We expect a 25 bps rate hike on February 1,” he adds.
Weekly gold technical analysis
Technical analyst Christopher Lewis explains the technical outlook for gold as follows. Gold markets initially fell during the week. But as we can see, the market has started to show signs of resurgence. The hammer-shaped candlestick could be a sign that we will continue to rise higher by trying to reach the $2,000 level, where we saw a lot of resistance before. The $2,000 level also has a huge amount of psychology attached to it, as it’s a big, round, psychologically significant big number.
If we reverse a break below the low of the weekly candlestick, then we could look at the $1,875 level, perhaps even lower. Gold has basically been on fire lately. So I think we have an opportunity where we can see buyers jumping in to buy cheap gold at every opportunity. Ultimately, I’m not interested in shorting this market, at least until it drops below the $1,800 level. A large amount of selling pressure will be required for this to happen.
If we break above the $2,000 level, we could look at the $2,100 level. But for that to happen, some momentum will be needed. Frankly, this is an overkill market. So long-term traders will have a big problem trying to get involved at this point. Here are a few red candles they need to see to get the first signs of support as we are seeing a huge change in the attitude of gold buyers.
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