Gold market report

Gold ended lower last week, and continues to be in the negative for January and thus the year as well. The metal had increased in the previous three months of 2023, driven by speculation that the Fed is going to reduce interest rates earlier than it had forecasted in its prior dot plots.

This year, we have witnessed some hawkish adjustment of the Fed’s rate reductions, and accordingly gold has declined as yields have risen. A few weeks ago, a rate reduction for March was almost certain by the market. Now, it is a toss-up, according to Investing.com’s Fed Monitor tool.

The hawkish adjustment of the Fed rate reductions has been backed by stronger data and hawkish remarks from Fed officials. Yet, this has not prevented equity markets from hitting new record highs, thanks to the soaring technology stocks.

In fact, the US dollar’s rebound has been mild and gold has only lost a little. So, there is still a good possibility we may see the continuation of the bullish trend for gold once the hawkish adjustment of the Fed cuts is done.

However, I will not be anticipating and instead wait for the right bullish sign from the charts before looking for long setups, considering the increasing number of central bank officials resisting rate cuts. What are Gold Traders Paying Attention to This Week?

Gold’s short-term direction is exposed to high volatility this week as we have two central bank meetings, namely the Bank of Japan and European Central Bank, and some high-level data from the US.

Gold ended lower last week, and continues to be in the negative for January and thus the year as well. The metal had increased in the previous three months of 2023, driven by speculation that the Fed is going to reduce interest rates earlier than it had forecasted in its prior dot plots.

This year, we have witnessed some hawkish adjustment of the Fed’s rate reductions, and accordingly gold has declined as yields have risen. A few weeks ago, a rate reduction for March was almost certain by the market. Now, it is a toss-up, according to Investing.com’s Fed Monitor tool.

The hawkish adjustment of the Fed rate reductions has been backed by stronger data and hawkish remarks from Fed officials. Yet, this has not prevented equity markets from hitting new record highs, thanks to the soaring technology stocks.

In fact, the US dollar’s rebound has been mild and gold has only lost a little. So, there is still a good possibility we may see the continuation of the bullish trend for gold once the hawkish adjustment of the Fed cuts is done.

However, I will not be anticipating and instead wait for the right bullish sign from the charts before looking for long setups, considering the increasing number of central bank officials resisting rate cuts. What are Gold Traders Paying Attention to This Week?

Gold’s short-term direction is exposed to high volatility this week as we have two central bank meetings, namely the Bank of Japan and European Central Bank, and some high-level data from the US.

The BoJ is unlikely to change its policy at this meeting, but may do so sometime in the first half of the year. Recent data from Japan will offer them little reason to adjust current settings, as inflation and wages data are both weak.

If the BoJ is more dovish than anticipated, this could boost gold, while any clear signs that it will stop negative interest rates could hurt gold as Japanese government bond yields increase. The global PMIs on Wednesday will give us clues about the state of the global economy at the beginning of the year, which traders could use as a gauge for demand for various commodities.

Worries about the state of the Chinese and European economies have restrained commodities and commodity-heavy indices such as the FTSE 100 and China A50 among others.

However, tech-heavy indices such as US Tech 100 and Germany 40 have performed better on expectations that the global slowdown will lead to a steep cut in interest rates. We have also seen base metals like copper suffer, dragging down silver and to a lesser extent gold.

Let’s see what the purchasing managers in the manufacturing and services sectors have said at the start of the year.

The PMIs are key economic indicators and investors will pay more attention to them. If we see a positive reaction in risk assets, then foreign currencies should gain against the dollar, supporting gold.

The upcoming ECB policy decision could affect gold.

If the ECB is more cautious than anticipated, then European bond yields would likely fall and that would support assets with low and zero yields like gold and silver. But the market expects a hawkish ECB after some officials last week resisted early rate cuts, following the Fed.

While in the US, the resistance is mainly due to a relatively stronger economy, in other places – especially in the UK and Eurozone – it is all about worries about inflation staying high, with wage pressures persisting.

ECB President Christine Lagarde indicated that borrowing costs could drop in the summer instead of spring, while some other ECB officials have also voiced concerns about wage inflation. Let’s see if the ECB will give any more clues at this meeting.

old, a buck-denominated asset, will probably get more influenced by the upcoming US data than anything else, following stronger-than-expected CPI, jobs, and retail sales reports in the last couple of weeks, the dollar has been pushing higher, keeping the price of gold under pressure.

There has been renewed concerns over the Fed’s inclination to maintain higher interest rates longer, after Fed governor Christopher Waller suggested a measured approach, cautioning against any haste in considering near-term rate cuts.

If GDP reveals further strength in the US economy, expectations of an imminent reduction in interest rates will be pushed further out. Gold bulls will therefore be looking for weakness in US data, including GDP on Thursday and Core PCE the following day.

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