According to some analysts, next week will be an important test for the gold market. Because a hawkish Fed could put downward pressure on the gold price, which is already sensitive after Monday’s peak.
Latest developments will keep gold below $2,050
cryptokoin.comAs you follow from , the price of gold reached a record level around $2,150 at the beginning of the week. However, it later entered the weekend down more than 3%. Thus, it declined below the critical support just above $2,010. With a surge of $146 this week, the gold market saw the most volatility since mid-August 2020, just after gold broke its previous record.
Ole Hansen, head of commodity strategy at Saxo Bank, says Monday’s rally and subsequent sell-off are not helpful for gold’s long-term price action. Technically, gold has a lot of work to do to undo the damage done, according to Hansen. Aside from the overbought momentum, the analyst notes that the gold market is too far ahead in terms of potential interest rate cuts in 2024. He notes that this will likely keep prices below $2,050 in the near term. “At the very least, we will see volatile markets,” Hansen said. “Moreover, the room for positive surprise for the gold price will be limited,” he says.
Gold price will see high volatility in the near term
Employment data released Friday showed the U.S. economy beat expectations by adding 199,000 jobs last month. This poured some cold water on a possible interest rate cut in March. At the same time, the unemployment rate decreased from 3.9% in October to 3.7%. Craig Erlam, senior market analyst at OANDA, also expects to see high volatility in gold in the near term. Erlam comments:
It’s been a pretty tough week for the yellow metal. Additionally, volatility may not go anywhere with the US inflation and Fed interest rate decision next week.
We will see some downward pressure now!
Phillip Streible, chief market strategist at Blue Line Futures, expects to see some downward pressure on the gold price. He adds that after Friday’s jobs report, Fed Chairman Jerome Powell is unlikely to change his hawkish stance, even though the central bank is expected to keep interest rates unchanged.
Gold price may be sensitive to updated dot charts
It’s not just a hawkish Powell threatening the gold market. Along with its monetary policy decision, the Fed will release its updated economic projections, including its interest rate forecast, also known as a dot plot. In its last update in September, the central bank signaled that it saw only two potential rate cuts in 2024. However, markets are pricing in a relaxation of more than 100 basis points next year. Markets see a roughly 60% chance of the first cut coming in March, according to the CME FedWatch Tool.
“Unless we see a major adjustment in the dot charts, there will be a clash between the Fed and market expectations,” Hansen says. Besides the Fed meeting, analysts say November Consumer Price Index data could also contribute to market volatility. Some analysts say that if core inflation remains above 3%, this will force the Fed to continue its tightening trend.
Recent rally showed huge potential in gold
The gold price will likely struggle next week. However, some analysts note that the market is still in good shape. Joseph Cavatoni, North America market strategist at the World Gold Council, sees Monday’s failed rally as very damaging. He says the rally shows how much potential gold has in the right market conditions.
Analysts point to these levels for the gold price
Phillip Streible says it is possible for prices to drop even further. However, he says it would be an attractive entry point. “This is where you start dipping your toe into the market,” the analyst said. The downside below is limited. While Powell isn’t ready to cut rates in March, a slowing economy means interest rates will eventually fall. This will be what will increase the gold price.” says. Moreover, Streible is awaiting a test near the $1,980 support.
Ole Hansen is watching whether the gold price will maintain the $2,010 support. He says breaking this level could trigger some significant stops in the market. He also states that it will create a new sales momentum. He notes that if $2,010 breaks, investors should consider the 200-day moving average of $1,959.
Next week’s data and event agenda
Meanwhile, the Federal Reserve will be on the agenda next week. Additionally, the Bank of England and the European Central Bank will announce their monetary policy decisions. Markets expect interest rates to remain unchanged. But investors are still anxious to see if there is a change in tightening trends.
- Tuesday: US CPI.
- Wednesday: US PPI. FOMC monetary policy decision.
- Thursday: Bank of England monetary policy decision. European Central Bank monetary policy decision.
- Friday: Empire State manufacturing survey. Flash PMI.
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