Gold extends winning streak from bolstered speculations

Gold extended its advance since last week climbing to levels once seen before in April of 2022. Yesterday the precious pulled back from its fresh highs as the dollar up ticked and temporarily dampened gold’s appeal, however increased bets for a less-hawkish Fed in the coming months put a floor under the bullion’s price. In this report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.

Expectations for a slower Fed-pace lifts the precious

Following the release of a cooler CPI print paired with a robust employment report, market expectations sparked hopes for less aggressive monetary tightening from the Federal Reserve, which fuelled the bullion’s ascend in recent weeks. Currently the Feds Funds Futures assign a 90% probability for the central bank to slow the magnitude of its interest rate hike in the February meeting to 25 basis points, lifting its target rate to 4.75% level. So far, the central bank downshifted to a 50-basis points rate hike in the December meeting, after four consecutive 75 basis points hikes, as it moves closer to its median 5.1% terminal rate. In recent weeks however,  market participants appear to be underestimating the resolve of the central bank, as they progressively bet that the Fed will not raise rates beyond the 5% target level and will be forced to pivot and cut rates later on this year  Analysts base their projections for a less hawkish Fed on recent data on the inflationary front, as the annual CPI for the month of December showcased that inflation in the US cooled as expected to the 6.5% level from the 7.1% reading of the prior month. According to the report, the headline rate was driven lower by easing energy prices and a further contraction in sales of used automobiles. On the flip side however, housing costs were once again on the rise signalling that, despite the fall of the headline rate, the US market continues to face issues with inflation of a much sticker nature and inadvertently rises the probabilities of inflation becoming deeply entrenched. Nevertheless, the bolstered speculations for a smaller rate increment from the Fed is expected to polish further the shiny metal in the eyes of investors, as the dollar continues to experience outflows.

Prospects for other central banks catching up to the Fed may support the precious

Since the Fed embarked on its aggressive monetary policy campaign in 2022 other major central banks fell victim to the reign of the dollar, seeing their currencies devalue tremendously. Now that the Fed signalled it is about to lift its foot of the throttle, Bank of England, the European Central Bank و Bank of Japan are expected to cover the lost ground and could possibly pose as the threat to the dollar’s superiority. According to the latest EUR OIS the market foresees the ECB to hike by 50 basis points in the February meeting, attributing an 87% probability for this scenario to materialize. Furthermore, the GBP OIS currently implies a 76% probability for the BoE to lift its key policy rate by 50 basis points as well in its February meeting, while tomorrow the Bank of Japan is expected to keep its ultra-loose monetary stance unchanged. However, since BOJ surprised the markets last month by altering the bands of its YCC policy, market participants speculate that the central bank may abolish its YCC totally. Overall, the prospects for further rate increases by BoE و ECB alongside the possibility that BoJ is to allow the quantitative tightening of the market, could leave the greenback negatively predisposed for further weakening and henceforth provide extensive support for the bullion.

التحليل الفني

XAUUSD H4 Chart

• Support: 1900 (S1), 1880 (S2), 1865 (S3)
• Resistance: 1920 (R1), 1940 (R2), 1960 (R3)

Looking at XAUUSD 4-hour chart we observe gold breaking briefly above the upper bound of the ascending channel formed since the 21^st of December but soon after it retraced it steps lower and it is currently trading near the $1910 level. We maintain our bullish outlook bias for the precious and supporting our case is the RSI indicator below our 4-hour chart which currently registers a value of 60, showcasing that the sentiment is still in favour of the bulls. The price action trading near the midline of the Bollinger bands may imply that the precious consolidates and attempts to form a higher low, which could facilitate its next move north should the bulls maintain their superiority. Should the bulls continue to drive the price action higher, we may see the break above the 1920 (R1) resistance level and the possible challenge of the 1940 (R2) resistance barrier. Should on the other hand the bears take the initiative, we may see the break below the 1900 (S1) support level and the move closer to the 1880 (S2) support base.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.

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