Where Are Gold Prices Heading Now? Eyes on FED Decision!

Gold prices extended their gains on Tuesday. US employment data further darkened the economic picture ahead of the Federal Reserve’s expected rate hike decision. After that, gold is on its way to realizing the biggest daily rise of the last month.

Gold prices supported by safe-haven demand

cryptocoin.comAs you can follow, job vacancies in the US fell for the third time in March. But it remained at levels consistent with a tight labor market. This data is pretty bad right now. OANDA senior market analyst Edward Moya says this provides further optimism about the Fed’s dovishness. But he notes that it doesn’t provide enough clarity to reinforce this view. “But it’s in the right direction, so the pigeons will run with it,” Moya says in this regard.

The FOMC began its two-day meeting, which is expected to raise interest rates by 25 basis points. Bank of China International analyst Xiao Fu says gold is also supported by some safe-haven demand, driven by resurgent concerns over the health of the banking sector and uncertainty over the US debt ceiling.

Gold prices will remain flat for a while, but…

GoldCore marketing manager David Russell states that gold is facing strong resistance just ahead of the ATH level. According to Russell, this is not unexpected in the short term. Especially since its dramatic 25% rise since last October. Gold futures spent April mostly above the $2,000 level. However, Russell takes a different perspective and explains:

The previous all-time high is more of a psychological hurdle at this stage than the $2,000 level. He will eventually surpass this level. But for a while, maybe until the autumn, we can follow a horizontal course…Gold as a hedge against uncertainty is getting more and more attention, especially since the recent US banking problems, in addition to the de-dollarization rhetoric from BRICS countries including Russia. Gold as a safe haven concept is very strong and continues to grow among both central banks and investors.

Gold prices will break new records this year, because…

Edmund Moy, a former director of the U.S. Mint, said many of the key factors behind gold prices exceeding $2,000 exist, including the continued rise of inflation in many countries, the possibility of a U.S. and global recession, the “wobble” of the U.S. regional banking system, and the instability caused by the Russia-Ukraine war. He says he got it. However, he notes that the relative strength of the dollar “prevents the rise of gold prices”.

Moy says central banks are buying record amounts of gold. They do this mainly because they see potential economic uncertainty in the US and the US dollar. Therefore, Moy believes that gold will break new historical price records this year. In this context, the analyst notes:

Inflation, possible recession, a haphazard debt ceiling process, increased competition against the dollar, rising tensions between the US and China, and the escalating prospect of regional conflicts or war could be bad for the world. But it is good for gold.

Gold is still a safe haven for central banks!

According to the World Gold Council, global central banks’ demand for gold reached a record high in 2022. The Council stated that 2022 marks the thirteenth year of net gold purchases among central banks. The World Gold Council released a report in early April. According to this report, global gold reserves increased by 52 metric tons in February. Thus, the eleventh month in a row saw net gold purchases.

Sprott Asset Management market strategist Paul Wong says gold purchases are “dominated” by non-individual clients such as central banks, commodity trading advisers, quantitative analysts and algorithmic trading, and none of them care about $2,000 as much as individuals. Wong points out that there is a “big gap” between central banks’ gold purchases and individual purchases, such as gold purchases for exchange-traded funds.

Wong says gold is “still seen as a safe haven” by central banks. He also notes that the increase in central bank purchases is likely due to a combination of important factors such as the global rise in inflation, the confiscation of Russia’s foreign exchange reserves and the de-dollarization effort.

Key levels for gold prices

Technical analyst Anil Panchal describes what he saw in the technical drawing of gold as follows. According to Technical Confluence Detector, gold prices remain under pressure below the $1,990 resistance, which consists of one-week and one-month Fibonacci 61.8% and one-day Fibonacci 38.2%.

In addition to the $1,990 barrier, the one-week Fibonacci 38.2% around $1,998 is also acting as a key short-term upside resistance that gold buyers should follow before regaining control. Still, the confluence of the daily R1 Pivot Point, the Bollinger middle band on the daily chart, and the one-week Fibonacci 23.6% around $2001 could be the last defense of the gold sellers.

Meanwhile, the metal’s southward path looks smoother with minor support near $1,973 covering the Pivot Point one-week S1, followed by the $1,970 mark containing the Pivot Point one-day S1 and Bollinger’s one-day lower band. It is possible for golden bears to keep the reins above $1,970. In this case, a drop towards the previous month low to $1,950 is possible.

Door open to extra range limit under $2,000 for gold

CME Group’s latest data on gold futures markets noted that traders added nearly 6.1k contracts to their open interest on Monday. Volume, on the other hand, contracted by around 33.7 thousand contracts in the third session in a row.

According to market analyst Pablo Piovano, Monday’s decline was driven by higher open interest and lower volume. The analyst says this also shows that further consolidation remains in the cards for the metal in the very near term and always below the key $2,000 mark.

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